Nortel in talks with China's Huawei

OTTAWA - Nortel Networks Corp. said Wednesday it was talking to Chinese rival Huawei Technologies about how the two competitors could work together now that they have killed off a communications equipment joint venture.

"There's no formal joint venture. That doesn't mean that you can't find ways to work together to resell products or to participate in other ways," Nortel's chief strategy officer, George Riedel, told Reuters in advance of his speech at a telecommunications conference in Toronto.

"We're in discussions, informally, to figure out what makes sense going forward."

Riedel said he could not comment on specifics. The two companies had planned to develop high-speed broadband access technology. The venture was scrapped because key customers had already picked other suppliers, Nortel has said.

Nortel, which is studying its operations to determine where it can be most profitable, expects to conclude a strategy review by the end of June, Riedel added.

That will determine where Nortel will focus over the next several years and what areas it should exit, said Riedel.

Chief Executive Mike Zafirovski has said he wants Nortel to have a 20 percent share in any market in which it competes.

Riedel called that target an "aspiration" and "goal", noting that Nortel's overhaul is a three- to five-year plan.

The company expects to start a third review this fall on long-term product development, and then study budget and planning in the fourth-quarter, he said.

"Can we improve the profitability of the existing portfolio of businesses we're in today? Largely within our own control, the answer is yes," Riedel said in a phone interview.

Nortel is targeting operating margin expansion of 300 to 500 basis points during each of the next three years.

There are currently six teams at Nortel, totaling 120 staff, who are searching for savings from such operations as supply chain and services. They have found 25 percent savings on the first US$700 million of purchases reviewed, Riedel said.

As it looks to cut costs, Nortel is also hiking spending on technologies it expects to drive demand. The company has boosted its WiMax wireless gear investment by two to two and a half times to accelerate development work, Riedel said.

Trials are expected to start later this year with products commercially available in early 2007, he added.

They will compete with offerings from Motorola, Samsung, and several other companies, starting later in 2006. "We might be a few months behind, but we think we'll have a better story for the long run," Riedel said.

Nortel is also increasing its spending on IMS, a networking standard to lets telecom firms roll out services more easily and cheaply.

It hopes to score contract wins "in the very near future", Riedel added. "You would expect to see some results, certainly, before the end of the year."

The company is also boosting its efforts on Internet-delivered television and is in talks with customers about trials and bids.

Nortel shares were up more than 3 percent early Wednesday afternoon, rising 7 cents to US$2.14 in New York and up 8 Canadian cents at C$2.38 in Toronto.

By: Susan Taylor

Copyright 2006 Reuters. Click for Restrictions

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