TORONTO-Nortel Networks Corp. announced plans to re-enter the broadband access market, unveiling a teaming with Huawei Technologies Co. Ltd. to develop access offerings for service providers around the world.
The companies said they plan to establish a joint venture that would sell products to converge the delivery of voice, video, data and wireless services onto a common IP platform that supports copper, fiber and fixed wireless networks. Nortel said it will own a majority of the new company, which is scheduled to launch in the third quarter of this year and be headquartered in Ottawa.
Financial details were not disclosed.
The joint venture plans to develop product enhancements for Huawei’s current broadband offerings as well as a new product portfolio. The two companies also inked a supply agreement allowing Nortel to market Huawei’s products immediately.
UBS Investment Research said the move allows Nortel to step back onto the broadband access playing field with a credible partner. But the firm said the effort is not without risk, citing Huawei’s mixed record with joint ventures.
“We view (Nortel’s) strategy as practical, both from an investment and time-to-market standpoint as re-entering the access market with its own products only would be difficult after exiting in 2001,” according to a research note from UBS. “Major risk is the ability to manage the joint venture and partner effectively with Huawei. We note that in the past, Huawei’s joint ventures with 3Com (Corp.) and Siemens (AG) have not proven as successful as initially anticipated.”
In a separate announcement, Nortel announced a $1.3 billion financing agreement with J.P. Morgan Securities Inc. and Citigroup Corp. and Investment Banking. The finance companies agreed to provide Nortel with a senior secured one-year term loan of $850 million and a senior unsecured one-year term loan of $450 million.
Nortel said it plans to use the loan, which matures in February 2007, to refinance a $1.275 billion debt due in two weeks.
Shares of Nortel were up 7 cents to $3.07 in mid-day trading following the announcements.
