The optical networks division of Nortel Networks Corp. (NYSE/TSE: NT) reportedly has lost several key engineers and executives to local startups in recent weeks -- signaling possible underlying dissatisfaction with the management and direction of the market leader.

Late this spring, for example, a number of engineers left some key optical projects in Nortel's Ottawa headquarters to found their own company, Solinet Systems Inc.. Included were Madhu Krishnaswamy, Hanan Anis, and Avid Lemus, former Nortel engineers who were involved in developing 40-Gbit/s optical transmission and DWDM solutions in Ottawa.

Since founding Solinet, which is still in stealth mode, the maverick team says it's taken off like gangbusters, with lots of help from other Nortel refugees.

"We've hired 37 people since May, roughly half of which come from Nortel," says Madhu Krishnaswamy. And he says he's done nothing to solicit the help: "We are very careful not to solicit people," he says, bearing in mind the lawsuit Nortel brought against ONI Systems Corp. (Nasdaq: ONIS) (see Vendor Lawsuits Get Personal ).

And Solinet's not alone. "I can only tell you that 24 hours after placing a couple of recruitment ads in the Ottawa Citizen [newspaper], we'd received over 160 high-quality resumes, primarily from Nortel," says the marketing VP of another local startup, who spoke anonymously.

What gives? Is there an imminent brain drain at Nortel, as there has been from Lucent Technologies Inc. (NYSE: LU)?

No, says Nortel. "We have lost several people over the past few weeks, but that's not unusual," said a Nortel spokesperson. "People come and go all the time here. It sounds like you're paying credence to malicious gossip. That's not good journalism."

Still, the gossip doesn't seem to go away. "We get two to three resumes a day from Nortel," said one startup executive. "There's clearly unrest over there."

Part of the problem, some say, is Nortel's May 2000 decision to create a separate optical components group from other business units within Nortel. "Lots of good people bolted after the May 5 announcement," said an executive at an Ottawa startup other than Solinet, who spoke anonymously but says he was employed at Nortel at the time. "People were asking, what's in it for me? There was uncertainty among folks who had high-demand skills and talent and who had put their trust in one company, worked there five to 10 years, and now were being moved around, their future uncertain."

He says recent changes in the management of Nortel's optical networks group also haven't helped matters. "Greg Mumford [president, optical networks] is not a charismatic leader. He's an operations guy, a low-profile executive. He's taking credit for optical leadership that's really been provided by Clarence Chandran [COO], who's polished, princely. Greg doesn't fit the bill."

It could take time for the cracks at Nortel to widen -- if in fact they are really cracks. Other sources say a staff exodus like that at Nortel isn't necessarily evidence of any crack of doom -- unless and until it can be linked to downward financial trends. "It's terribly hard to keep engineers these days," says Curt Wheeling, CTO of Advanced TelCom Group Inc., a startup carrier. "It's happened to our vendors, it's happened to me." It's just a sign of the times, he says, that folk who are in demand keep exercising their options.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com