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The Decline & Fall of Nortel Networks

Craig Matsumoto
1/21/2009
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And so it's come to this.

Restructuring and bankruptcy protection might not be the end of Nortel Networks Ltd. , but it's certainly the end of Nortel as we know it. Most analysts agree that pieces of the company will be sold off, and what's left won't be the technology colossus that was Nortel. (See Nortel Files for Bankruptcy Protection and Should Nortel Be Sold for Parts?)

Since Light Reading started in 2000, we've posted more than 1,700 news analyses that included substantial mentions of Nortel. Together, they trace the arc of the telecom downturn and reflect the additional punishment suffered by Nortel employees and shareholders in the wake of accounting scandals and missed opportunities.

Talk about highs and lows. It's been a house of trap doors for Nortel. Every time things start shaping up, something new – usually a Nortel CEO – causes the floor to cave in.

Don't believe us? We've got nearly a decade's worth of headlines to sift through. Pick your favorite year, and see for yourself.

  • Page 2) 2000: Rough Riding

  • Page 3) 2001: The Wheels Come Off

  • Page 4) 2002: Hope Stings Eternal

  • Page 5) 2003: Cracking

  • Page 6) 2004: Dunn Deal

  • Page 7) 2005: The Revolving Door

  • Page 8) 2006: Mike Z. Builds His Dream Team

  • Page 9) 2007: On the Offensive

  • Page 10) 2008: Storm Clouds Gather

    For Light Reading’s complete list of news stories, reports, blogs, and other content about Nortel Networks – including an RSS feed to all of our Nortel coverage – please click here.

    — The Staff, Light Reading

    Next Page – 2000: Rough Riding

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    Pete Baldwin
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    Pete Baldwin,
    User Rank: Light Beer
    12/5/2012 | 4:13:33 PM
    re: The Decline & Fall of Nortel Networks
    ... to Dave Roberts of Vyatta, for the shout-out in his own blog:
    http://opensourcejuicer.blogsp...

    Dave, an Nortelite who got out early, has his own timeline, with a more personal touch:
    http://opensourcejuicer.blogsp...

    ... and to Mark Evans' All About Nortel:
    http://www.allaboutnortel.com/...

    Evans' blog has been quite busy for a while, as you might imagine. His tidbit about the corporate jet was particularly interesting.
    http://www.allaboutnortel.com/...
    Pete Baldwin
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    Pete Baldwin,
    User Rank: Light Beer
    12/5/2012 | 4:13:33 PM
    re: The Decline & Fall of Nortel Networks
    For me, the most eye-opening part of the timeline was 2001. So many layoffs, again and again ... all the backtracking that represented. I didn't cover the company closely then, and I'd never stopped to think how much had happened that year.

    The prediction of profitability by Q4'02 was interesting, too...
    muffinman
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    muffinman,
    User Rank: Light Beer
    12/5/2012 | 4:13:33 PM
    re: The Decline & Fall of Nortel Networks
    I was at Nortel for 5 years, and escaped to Zhone of all places. Escaped from Telecom altogether 2 years ago, and very thankful.

    I won't give a timeline, but the main that went wrong from my perspective is Nortel tried to become Cisco. When I joined in 1997, Lucent was the big competitor. Along came Cisco in 1998, and as Cisco grew Nortel tried to mirror them. Examples...

    1. Buying Bay Networks. Fine company, but wrong fit.
    2. Outsourcing everything. Right idea, but NT bungled it. Sold operations with highly paid people, and then wonder why the could not get competitive costs.
    3. Overconfidence. Won't ever forget John Roth saying "Nortel will learn to spell 'IP' before Cisco learns to spell 'quality'"
    4. Overspending stock. Again, Cisco was the pro at using stock to buy companies, but NT blew it on Promantory, XRos, etc...
    5. Greed - Management
    DCITDave
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    DCITDave,
    User Rank: Light Beer
    12/5/2012 | 4:13:32 PM
    re: The Decline & Fall of Nortel Networks
    re: "For me, the most eye-opening part of the timeline was 2001. So many layoffs, again and again ... all the backtracking that represented. I didn't cover the company closely then, and I'd never stopped to think how much had happened that year."

    I covered them then and the PR machine at the time would just lie about EVERYTHING. I mean, they would even lie even more than normal PR people lie, which is quite a lot.

    ph
    muffinman
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    muffinman,
    User Rank: Light Beer
    12/5/2012 | 4:13:32 PM
    re: The Decline & Fall of Nortel Networks
    2000 was when things really started to fall apart. So much hype. Pushing for a big Q4, trying to get to $30B of revenue. Then, in early 2001, we had an employee meeting, and you could tell something was amiss. As you mention, 2001 was when things fell apart, but it happened because of mismanagement in 2000. One reason was the lending to CLECs, if I remember correctly.
    telecom_guru
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    telecom_guru,
    User Rank: Light Beer
    12/5/2012 | 4:13:31 PM
    re: The Decline & Fall of Nortel Networks
    I've read all the boards and many of the opinions have some merit, however the ultimate reason for the failure of a seemingly sound company is bad senior executive management and plain bad execution.

    Let's start with the Clarence Chandran appointment (Roth handed the helm to Clarence) and quickly we had a string of ill founded acquisition (Aptis, Shasta, Alteon, Some photonic switch crap company, a bad IP DSLAM, can go on and on....). Roth (who was actually a great ceo) had to step back in ...but by then the firewall had been too badly compromised not to mention the telecom bubble burst happening. Chandran was a freaking disaster, this guy was not ready to run a major corporation. Then our next brilliant move... appoint the CFO as CEO (Frank Dunn)... another freaking disaster in the making. This guy knew less about running a major corporation than did Clarence and Dunn ended up showing how stupid he really was by not even understanding that what he was doing with the books was illegal (yeah I actually believe he was too stupid to know... I knew him, he was a complete idiot!). I would say that between Chandran and Dunn, the company was placed in a death spiral that was not recoverable. All the king's men and all the kings horses could not put dumbpty nortel back together again. The next guys who came in really stood no chance, the poison pill was already swallowed... it was slow poison that's all. I reckon that if Roth had never handed the company to Chandran, Nortel would be alive and strong today (or as strong as any other telecom provider). Roth had the right vision and he knew how to execute... those other dumb %#$&'s were a bunch of posers!!!!!

    Too bad, because Nortel actually had some smart people, specially in R&D... Yeah the good 'ole BNR days... those were the days my friends...
    Hanover_Fist
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    Hanover_Fist,
    User Rank: Light Beer
    12/5/2012 | 4:13:30 PM
    re: The Decline & Fall of Nortel Networks
    Phil,
    So, between Nortel's neutered Board of Directors and their MIA executive management team, what makes you think they can possibly find and bring forward "all that's going well" there?

    In all honesty, this company is truly 'Dead Man Walking.' The bloody body's in the water and surrounded by sharks; it's only a matter of time before the feeding frenzy starts.
    DCITDave
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    DCITDave,
    User Rank: Light Beer
    12/5/2012 | 4:13:30 PM
    re: The Decline & Fall of Nortel Networks
    That's a bit harsh. I don't think they're destroying value on purpose. Instead, they just haven't found the right leadership to realize and bring to the surface all that's going well at Nortel.

    ph
    Hanover_Fist
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    Hanover_Fist,
    User Rank: Light Beer
    12/5/2012 | 4:13:30 PM
    re: The Decline & Fall of Nortel Networks
    Based on this report, is it fair to conclude that Nortel's current PR spinny statement of "Business as usual" can be direclty translated to, "We'll continue flying this airplane RIGHT into the ground and make sure to kill EVERYONE on board! We want to ensure there are absolutely NO survivors when we're finished!"?
    paolo.franzoi
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    paolo.franzoi,
    User Rank: Light Sabre
    12/5/2012 | 4:13:30 PM
    re: The Decline & Fall of Nortel Networks

    Where the heck did Phil Harvey go? Who is this clone that has replaced him....a kindler, gentler Phil - maybe one who has hope?

    I think taking Nortel on its own and saying good or bad things is not accurate. Lucent, Siemens, and others are having or have had the same problem. These companies sold over their history systems to companies that deployed the same technology over decades. Think about how long mechanical and analog - even digital phone switches - were around. They sold to monopolies government or otherwise who did few things on mass scale. These were VERY stable businesses. Low growth, good profit, highly stable. Go back before the breakup and to the days of rate of return. People could plan CAPEX based on retirement of the rate base and housing starts.

    Today, we are talking about what kind of fiber to the home technologies we might want to deploy. Verizon launched FiOS in Keller in summer of 04. That is less than 10 years from the JPC RFP for DSL. Think about it. People are now arguing about second generation and third generation Fiber to the Home technologies 5 years after the first large scale networks started.

    On top of that the entire network financial model has changed as has the purchasing model. These companies - which are huge institutions - have not changed rapidly enough. Materialgirl has posted here over the years with a view to the bright shiny new world. I don't always agree with her, but I do agree looking back to old models is a failure waiting to happen.

    The emperor has no clothes. Our current business models are very broken. Want to understand why VC money has dried up? Think about it. Why the heck are we investing hundred of millions in new systems just to get to low margin systems businesses competing against dozens of companies (NT, ALU, NSN, Cisco, Juniper, Mot, Fujitsu, Hitachi, NEC, Huawei, ZTE, etc.). The carriers are doing their consolidation bit to lower costs of their company. The vendor community still acts like it is 1990 - heck some act like it is still 1999.

    The hard part is the executives that are at the top of these firms for the most part grew up in the days when the companies had stable R&D investment models and ROIs. It is not that they are good, bad or indifferent. They are obsolete. The funny thing is that many of them listen to conventional wisdom. This is a period of industry restructuring. Linear analysis is going to lead companies to failure. But that is what analysts do. What these large companies need is vision to see past the analysis to what the structural issues are and how to get out of them.

    seven
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