Nortel Networks Corp. (NYSE/Toronto: NT) has regrouped its divisions in an effort to be "focused more directly around its customers" (see Nortel Reorganizes).

The company is eliminating its Metro and Enterprise Networks division and moving the products that were contained there into separate Wireline Networks and Enterprise Networks businesses. Frank Plastina, former president of the dissolved division, is leaving the company after 15 years.

At least one analyst thinks the sorting could mean Nortel's prepping to sell its enterprise business. "The important thing is the accounting," says Frank Dzubeck, president of Communications Network Architects. If the company regroups its financials along the new segmentation, it's possible the company could be thinking of selling one of them. In Dzubeck's view, the likeliest sale would be enterprise gear.

Nortel's new Wireline Networks division will be headed by Sue Spradley, who's been in charge of Nortel's voice-over-IP product line. The division will include all "voice, data, and multimedia service offerings, as well as... circuit technology solutions," according to Nortel's public statement. Up to now, the circuit-switched products were part of Metro and Enterprise, Nortel says.

The new Enterprise Networks business will be led by Oscar Rodriguez, who's been in charge of the company's Intelligent Internet products, which included a potpourri of hardware and software, including the enterprise BayStack switches and security offerings.

The company's Wireless and Optical Networks divisions remain unchanged, headed, respectively, by Pascal Debon and Brian McFadden.

Nortel's Metro and Enterprise Networks division has been its largest revenue segment, representing nearly 44 percent, or $1.2 billion of the company's $2.7 billion in revenues for the second quarter, ended June 30, 2002 (see Nortel Reports Q2 Numbers).

But it's also been the company's second-biggest loss leader, next to Optical Networks. Last quarter, the division revenues were down 38.7 percent year over year, compared with 46.4 percent for Optical.

Apparently, some investors think the new grouping shows promise: At press time, Nortel shares showed some upward movement from their position in the sub-dollar range. Shares were trading at $0.51, up $0.02 (4.08%).

Nortel hadn't confirmed at press time whether it would change its accounting to reflect the new divisions, although it's reported by segment up to now. "You can expect that it will evolve," writes spokesman David Chamberlin in an email. He says more details will come when the company reports earnings October 17.

Analyst Timothy Bechter of Legg Mason Inc., isn't reading that much into Nortel's latest move. "Nortel's trying to get closer to the customer, trying to get its sales force directed at where the business is. They've done this a few times in the past. But this seems sort of superficial... I'm not sure how useful it will be this time. It didn't make much difference before."

Neither Dzubeck nor Bechter sees much significance in the departure of Frank Plastina, who once was spoken of as a possible successor to ex-CEO John Roth (see Nortel's Empty Room at the Top). In times as tough as these, analysts seem inured to changes that might once have raised eyebrows.

Today's reorg is the latest attempt by Nortel to stanch its fiscal bleeding. Despite some minor good news (see Nortel: No Mercy ), the company has recently warned that revenues could sink another 15 percent when it reports third-quarter earnings. And most observers are predicting many more layoffs and cutbacks.

To top off its woes, Nortel's being sued for about $14 million by erstwhile customer Genuity Inc. (Nasdaq: GENU), which claims the company breached contract terms with the beleaguered carrier. Nortel says it hasn't yet been served with the suit, but, Chamberlin says, "We believe the suit is without merit and will defend ourselves vigorously."

— Mary Jander, Senior Editor, Light Reading
www.lightreading.com