After a long struggle to fix its many internal problems, Nortel Networks is ready to go shopping. The Toronto-based telecom giant is looking to make acquisitions in the optical gear, business Wi-Fi, WiMAX, fourth generation (4G) wireless, and unified communications sectors. 

“Anything that moves the industry toward simplified wireline transport and reduces cost while increasing performance is fair game for Nortel,” said John Roese, Nortel’s chief technology officer. “That could mean acquisitions, minority investments, partnership, or even internal activity.”

The fact that Nortel is in acquisition mode is remarkable because not that long ago the company was itself viewed as a likely acquisition target. Once Canada’s largest publicly traded company, Nortel lost more than 90 percent of its market capitalization in 2001-2002, the dark days of the telecom downturn.

The market turmoil, financial mismanagement, and regulatory complications that followed reduced the onetime high-flyer to a shell of what it once was. The company had three CEO changes in a two-year period. Former Motorola executive Mike Zafirovski, who took over in November 2005, has worked hard to turn the company around. In the last quarter, Nortel reported a net loss of $37 million on revenue of $2.56 billion, down 8 percent year over year. The stock recently traded at $18, a fraction of the bubble high of $815 in August 2000.

Nortel, which acquired nine companies in 2000, bought just two in 2005. In August 2006, Nortel shocked the industry by selling off its key third-generation (3G) mobile broadband unit to Alcatel for $320 million. With the sale of that Universal Mobile Telecommunications System unit, analysts began anticipating a Nortel fire sale.

“The [3G] sale sent a clear signal to the market that Nortel was a confirmed seller rather than a buyer,” says Joe Nordgaard, director of wireless consulting firm Spectral Advantage. “The transition from seller back to buyer will be a difficult one for Nortel.”

It involves getting on the market’s jittery leading edge, acquiring the right startups, and successfully integrating those companies into Nortel’s business. “It’s a very dynamic market right now with so many concurrent areas of innovation that acquisitions can be notoriously difficult,” Mr. Nordgaard adds. “You have to acquire companies with products that are in the market—not three years away. You can make a lot of mistakes, which Nortel knows a lot about.”

But Mr. Roese feels confident that Nortel will be able to make the right calls in choosing among the many competing technologies in the telecommunications market. “For instance, we believed that the economics, and the vendor composition of the 3G market, just did not work, and we felt that 4G was coming faster than most people anticipated,” he says. “So we made a good call on 3G.”

The 3G market has proven to be disappointing, Mr. Nordgaard agrees, but 4G, which involves the convergence of wireless and wireline under IP, is still mostly speculative.