This paper made a big deal of Nortel's outsourcing of optical design teams to Flextronics (July 5, page 1), and not just because our readership is dominated by design engineers. When I wrote a column on outsourcing five months ago, the transfer of a handful of Brecis Communications design engineers to India appeared to represent a new trend. Now we're already talking about the transfer of entire product design groups to third parties.
There's an appeal in keeping design groups close to affiliated manufacturing operations, and Nortel makes a case for transferring only those teams that design upgrades to mature product lines. No cutting-edge 40-Gbit line cards or ASICs are being designed at Flextronics-at least not today.
But market analysts are right to suggest the move might be the first step in making Nortel a software company by default-and that the trend could well extend to other manufacturers of network and telecom equipment.
Few telecom or network equipment makers can morph into services specialists, because most farmed out their service operations long ago. Systems integration has not been as popular in the communication business as in client/server IT, except in military and other specialty markets. So, a telecom gear maker moving out of both design and manufacturing doesn't have a lot of differentiating fields from which to pick. And software is by no means a protected sector.
As we pointed out in our July 5 story, Flextronics already has a controlling interest in Hughes Software Systems and is interested in FutureSoft Inc. Motorola Computer Group picked up protocol specialist NetFrame Systems Inc. for the same reason, and SBE Inc. is partnering with NComm Inc. for a broad line of WAN source code. It's a sure bet that companies with strong manufacturing talent will keep their eyes on the likes of LVL7 Systems and IP Infusion Inc. for embedded protocol software.
Skeptics might note that there's plenty of application software, riding atop public switched telephone network signaling and TCP/IP stacks, in which a self-reinventing gear maker might specialize. But with all operations, administration and maintenance moving to XML and its derivatives, and functions from multiprotocol label switching to XML and Soap moving to silicon faster than you can program an FPGA, the entire seven-layer communications stack appears to be modularizing before our eyes.
With contract manufacturers becoming experts in design and software, and Asian original design manufacturers moving quickly to dominate every telecom equipment field, surviving gear makers had better think hard about what their core areas of expertise really are.
I'd hate to see a name like Nortel reduced to little more than a label for a product with all intellectual property externalized.
Loring Wirbel is Communications editorial director for EE Times and its network publications.