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Optical/IP

Nortel CEO: We're Ready to Deal

LAS VEGAS -- CTIA -- New Nortel Networks Ltd. CEO Mike Zafirovski made a rare public appearance here on Thursday, spreading the message of Nortel's impending transformation.

Zafirovski stressed the need to strengthen Nortel's balance sheet, fix broken financial systems, install a new leadership team, and turn Nortel employees into "boy scouts" who would do the right things. He also indicated that acquisitions -- or even deals on a larger scale -- would be a part of Nortel's future. (See Nortel CEO Maps Out His Vision, Nortel's New Faces Face Tough Task, Nortel, Moto Settle on Zafirovski , and Nortel Names Zafirovski New CEO.)

The new CEO, a former Motorola Inc. (NYSE: MOT) executive and a 25-year veteran of General Electric Co. (NYSE: GE), looks to impose his Jack Welch training on Nortel's turnaround. He said that while at GE, he was involved in 75 acquisitions, so deals will likely be a part of Nortel's future. When asked if sizeable transactions would be a problem considering Nortel's weakened financial position, he said big deals wouldn't be ruled out.

"There are mechanisms that would enable the deal if it would be a meaningful transaction," said Zafirovski.

The CEO said he expected the industry's move toward consolidation, demonstrated by the recently announced Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU) deal, to accelerate. "Most of the action has been on the customer side, but now there will be more on the equipment side." (See Alcatel, Lucent Seal Deal.)

In the meantime, Zafirovski is focusing on changing Nortel's corporate culture by cleaning up its financial systems, streamlining the product focus, and hiring new executives. He said that four important leadership positions remain to be filled, including Chief Marketing Officer, President of Services, President of Innovation, and Chief Technology Officer.

Nortel will cut product lines that don't have more than 20 percent market share, trim more than $200 million from its financial costs, and improve the company's operating margin by $1.5 billion, all in the next couple of years, said Zafirovski, who noted that it will take "three to five years to create a great company."

Here at the CTIA wireless conference, Nortel unveiled more details about its IP Multimedia Subsystem (IMS) portfolio and indicated it's one of the areas in which it intends to focus. (See Nortel Enhances IMS.) So what does Wall Street think it will take to boost Nortel's stock price? It sounds as if many expect M&A activity to move the stock. Zafirovski is seen as the executive who has the street cred to turn the company around, but many folks also expect him to clean up the company and shop it around.

Sources tell Light Reading that the company is talking to other large equipment providers about potential mergers akin to the Alcatel/Lucent marriage. Nortel is believed to be one of a number of vendors that have held exploratory talks with Siemens Communications Group about consolidation possibilities. (See Alcatel/Lucent: The Domino Factor and Sources: Lucent, Nokia in Play for Siemens.)

— R. Scott Raynovich, Editor in Chief, Light Reading

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flyingsausage 12/5/2012 | 3:58:09 AM
re: Nortel CEO: We're Ready to Deal "Nortel will cut product lines that don't have more than 20 percent market share"

is that an official communication from Nortel Networks ?

what's gonna be left ? Most equipment vendors have usually more than 20% market share in very few areas (2 or 3), while developing and selling products in hundred areas, and even sometime having better margins in the less than 20% market share business.

Remember the typical strategy of buying market share in one area by price leadership strategy (even going towards sacrifice sometimes), resulting in low profit, but opening the door for cross-selling of higher-margin business.

spelurker 12/5/2012 | 3:58:08 AM
re: Nortel CEO: We're Ready to Deal "Nortel will cut product lines that don't have more than 20 percent market share"

That's the Jack Welch school of business talking.
If you aren't #1 or #2 in market share, then drop the product (and resources tied up in it). I think the underlying assumption is that you need to spend more to make sales if you aren't a market leader (more perks, bigger discounts, more sales visits). And you are doomed to a slowly dwindling revenue stream. So if (after trying) you can't get near the top, then focus on the things that your company is better at.

It worked reasonably well for GE, and J.W. was considered godlike by Wall street because of it.
freetoair 12/5/2012 | 3:58:05 AM
re: Nortel CEO: We're Ready to Deal Closed booth at CTIA was a joke.
People could not even get in.

They should cut all the marketing execs down to director level and restaff. there is some good technology but they have no clue how to market it and this closed CTIA booth was just one more example.
Road Trip 12/5/2012 | 3:58:04 AM
re: Nortel CEO: We're Ready to Deal If they want to do that, get a room.
chip_mate 12/5/2012 | 3:58:04 AM
re: Nortel CEO: We're Ready to Deal This was a re-hash booth from 2005 CTIA.
But it still makes one wonder what message Nortel has with the 20 foot walls and the guarded velvet rope allowing only "certain" people to enter:
-we're proprietary
-we're a 'closed environment' (same thing)
-we're exclusive (not really what the internet stands for guys)
-we don't sell to flunkies who want financing. we learned that lesson, or should we say our former management sure did!

Any other thoughts?
dcb1994 12/5/2012 | 3:58:04 AM
re: Nortel CEO: We're Ready to Deal I believe Nortel will be Lucent2. They are facing teh same embarassment, with the similar background.
Metropolitian 12/5/2012 | 3:57:57 AM
re: Nortel CEO: We're Ready to Deal I think Mr.Z is making a big mistake using GE's business models indisriminately in the telecom industry.

The "Be #1 or #2 or drop out" strategy might work with GE's business units that deal with light bulbs, jet engines or medical equipment, but not with telecom.

Telecom is so fragmented with countless players, that the difference between #1 and #4 (in term of market share) is not too great.

One also has to ask, why is it all the top positions in Nortel can only be filled by outsiders from GE that have no (or limited) knowledge of telecom. This is something very wrong if no one in Nortel (who supposedly are more knowledgable about telecom) are good enough to ascend to those positions.
optiplayer 12/5/2012 | 3:57:54 AM
re: Nortel CEO: We're Ready to Deal "One also has to ask, why is it all the top positions in Nortel can only be filled by outsiders from GE that have no (or limited) knowledge of telecom."

This statement is simply not true.

A quick review of the executives on Nortel's website shows that those managing the business units and sales teams are all Nortel veterans. The GE folks brought in by Mike Z tend to be in operations, manufacturing and supply chain roles where their GE experience will prove invaluable as Nortel strives to improve operating efficiency and gross margin.

johncom 12/5/2012 | 3:57:52 AM
re: Nortel CEO: We're Ready to Deal As someone who worked for both GE and Nortel, I can tell you that Nortel will benefit greatly from a dose of GE management. Having come from GE,I was astounded at the lack of financial controls and the overall incompetence of Nortel management. Nortel has some good technology but was so top-heavy with incompetent and clueless VP's that their current situation was inevitable.
GE managers are the best trained in the world. There is a saying within GE that a GE manager can manage anything. The proof is the success of the world's largest, most diversiifed company. Don't fool yourself into thinking there's something so unique about telecom a well-trained GE manager can't handle.
Mike Z and anyone else he brings from GE will be successful. Incumbent managers at Nortel are in for a whole lot of trouble, however.
opticalman 12/5/2012 | 3:57:49 AM
re: Nortel CEO: We're Ready to Deal Expect to see some of his colleagues from Motorola come onboard once the hiring moratorium expires.

These would be the folks with the telecom background that you are looking for.
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