Nortel Networks’ (NYSE: NT) first-quarter financials were bleak — no surprise for a company under extended bankruptcy protection that is looking to sell itself off in chunks. What may be surprising, though, is the relative strength of the company’s optical business.
While Nortel’s overall revenue was down 37% from a year earlier (and 36% sequentially) and its carrier networks division in particular was down 48% sequentially, its optical equipment revenue (about 80% of its Metro Ethernet Networks division) was down just 8% from a year earlier and down 27% sequentially (to about $288 million).
Those numbers don’t sound great, to be sure, but as Morgan Keegan analyst Paul Bonenfant pointed out in a research note today, they’re better than those of the optical market’s leader, Alcatel-Lucent, which reported first-quarter optical sales declines of 18% from a year earlier and 35% sequentially.
“In our view, the results were no worse, and probably better, than expected for Nortel’s optical division,” Bonenfant wrote, adding that Nortel saw record sales of its 40G gear in the the quarter during which it was in bankruptcy (it went from 42 to 46 optical customers in the first quarter while declaring bankruptcy in January) as well as trials of 100G gear, not to mention recent trials with Verizon and Comcast. “[The Metro Ethernet Networks division] also reported a rise in operating profit to $42 million from near break-even a year earlier.”
Its been clear for a while that Nortel’s optical business would be a particular prize for would-be acquirers. But it’s somewhat surprising how well that business is holding up, even as the company nears being pulled apart.