Nortel plans Asia push, but it may be a tough slog
TORONTO (Reuters) - Nortel Networks Corp NT.TONT.N plans aggressive growth in the Asia-Pacific region over the next two to three years, hoping to capitalize on demand for network gear and services in rapidly growing markets such as India and China.
Last year, the region accounted for 16 percent of Nortel's total revenue. The company wants to see that jump to between 20 and 25 percent in the next several years, Francois Lancon, Nortel's executive in charge of Asia-Pacific, told Reuters in a recent interview.
"It is a laudable goal," said Ed Snyder, an analyst at Charter Equity Research. "It's going to be very difficult to do."
Indeed, Asia is ground zero of the bare-knuckles cost competition that Nortel and some of its peers have blamed for dented revenue lines, poor profits and tight margins.
Even Lancon described the endeavor as "pretty ambitious."
"I don't think we want to hide the truth that Asia is an extremely cost-competitive market," he said. "It's just a fact of life."
The Toronto-based company, North America's biggest maker of telephone equipment, has picked faster network technology, next-generation WiMax wireless products and communications that integrate the phone closely with desktop computers as among its big Asian bets.
To be successful, Nortel is trying to set itself apart on technology and long-term value -- instead of going head-to-head on price with low-cost Asian vendors such as Huawei Technologies HWT.UL.
"If you are competitive in Asia, you're competitive in the rest of the world," Lancon said.
Indeed, a few recent wins seem to suggest the company is holding its own.
Last week, Southern Cross Cables, which provides Internet connectivity between Australia, New Zealand, Fiji, Hawaii and the U.S. mainland, chose Nortel's new 40 Gigabit technology, which lets it provide four times the bandwidth it had offered previously.
The company also announced last week that China's water resources ministry had picked Nortel to provide voice, data and video communications products that link employees in 31 provinces.
While the 40 Gigabit technology has promise, Snyder said unified communications wins like the water ministry deal in China are not doing much to help Nortel's fortunes. And he called WiMax a "dead end."
Still, with cost controls and productivity gains, he was optimistic Nortel would be able to gain some share in the region.
"Nortel is becoming very efficient, so I think they can eke out gains there like they have in some other places," Snyder said.
Nortel shares were up 3 Canadian cents at C$7.24 on the Toronto Stock Exchange.
($1=$1.02 Canadian)
(Reporting by Wojtek Dabrowski; Editing by Bernadette Baum)
