The troubled networking vendor joined with Alvarion last June after cutting back its own WiMax efforts. After years of struggling to recover from a financial scandal and compete against bigger rivals, Nortel filed for bankruptcy earlier this month. Alvarion said in a press release Thursday that Nortel had informed it of the decision to quit the WiMax deal.

Alvarion is a WiMax specialist based in Israel. The collapse of the deal will hurt its fourth-quarter financial results, due to be announced Feb. 4. The company won't be able to recognize about US$2.4 million in revenue from sales of products to Nortel in the quarter. Alvarion expects that to take $0.04 per share out of its fourth-quarter bottom line, which the company now expects to show a loss of $0.08. Nortel is obligated to pay Alvarion for certain research and development services beyond the fourth quarter, but in the wake of the bankruptcy, Alvarion said it's not certain whether it will be able to collect.

"The action, while difficult, was a necessary step addressing Nortel's current situation and intention to narrow the company's focus," said Richard Lowe, Nortel's president of carrier networks, in the press release. The companies are working on shifting over their joint WiMax customers to Alvarion, he said.

Nortel has its own WiMax infrastructure products, but they're best-suited to use in developed markets, said IDC analyst Godfrey Chua. Alvarion's gear is better for the developing world, which still makes up the lion's share of the WiMax market, he said. But Nortel's move didn't surprise Chua.

"They really need to make some hard choices," he said. "They can't stay at the scale where they are now."