Embattled telecom equipment manufacturer

Nortel Networks

(NT)

, which recently filed for

Chapter 11

bankruptcy protection, has suspended the sale of its key metro Ethernet networks division while it overhauls its business.

Nortel's change in direction adds yet another twist to the troubled firm's

attempted re-birth

, and has again placed its strategy in the spotlight.

"The previously announced potential MEN divestiture has been put on hold," explained a Nortel spokesman, in an email to

TheStreet.com

. "These plans have been put on hold while the overall business plan is being developed to emerge from this process a more competitive and focused company, which will be subject to the approval of creditors and the courts."

"The MEN business is among the strongest in the industry with an installed base of over 410,000 network elements, and with ground-breaking technology and opportunities moving forward like 40-Gbit/s Ethernet and 100-Gbit/s Ethernet," he added.

Last month, Nortel filed for bankruptcy protection in Canada and the U.S. in an attempt to put its

house in order

, and recently

discontinued

its mobile WiMAX operations.

The Canadian firm, which has been wrestling with

plummeting sales

of its wireless gear, first announced plans to

divest

its metro Ethernet networks division in September and was also rumored to be carving off more of its business.

Estimated to be worth around $1 billion, the metro Ethernet networks division accounts for about 14% of Nortel's overall revenue, although the firm may now be looking to hang onto a key asset in a tough economy.

Chinese technology giant

Huawei

was rumored as a potential purchaser of the MEN business, although the deal was said to have foundered on national security concerns. Other firms cited as possible buyers include

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,

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and Israeli network specialist

Radware

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, which reportedly

bid

between $30 million and $50 million for part of the Ethernet networks division.

Nortel did not respond to a request for comment for this article, although it has also been suggested that the firm only received low-ball bids for its prized Ethernet networks business.

With Nortel having gained some breathing space from its creditors, however, the firm may have decided to keep its hands on one of the strongest parts of its portfolio.

"I could never figure out why that was the business that they wanted to put on the chopping block," said a technology analyst, who asked not to be named. "They were doing well in the optical Ethernet side of it."

Although Nortel saw its metro Ethernet networks revenue slip 12% year-over-year to $317 million in its recent third-quarter results, this was significantly better than the firm's carrier networks business, which slumped 24% year-over-year to $822 million.

The firm's metro Ethernet networks portfolio includes Ethernet routing switches and optical multiservice edge switches. Nortel's switch technology is seen as a key component in users' long-term network strategies, which will eventually include high-speed 40-Gbit/s and 100-Gbit/s Ethernet.

Despite its recent problems, Nortel also has a strong cash position after exiting the third quarter with $2.3 billion in cash, which may have made the Ethernet networks sale less crucial.

The

impact

of Nortel's bankruptcy and reorganization nonetheless continues to

be felt

across the

tech sector

.

Wireless specialist

Alvarion

(ALVR)

, for example, saw its fourth-quarter revenue decline Wednesday, largely as a result of Nortel's decision to end a WiMAX joint venture between the two companies.