x
Employment

Nortel: Can This Company Be Saved?

In its news blitz last night, Nortel Networks Corp. (NYSE/Toronto: NT) stressed that it's remolding itself to fit the current economic conditions (see Nortel Swings Axe, Switches CEOs). In the process, it's jettisoning substantial "non-core assets" and changing its focus once again.

So what goes and what stays? And will it be sufficient to save the foundering firm?

Nortel itself is not giving much color. But a few key items of information can be gleaned from the deluge of data Nortel's dumped on press, investors, and customers over the past few days.

First, it's clear that Nortel's not really changing its product focus, even though it's reducing its focal areas from five to three. Three former focal areas -- Optical Metro, Intelligent Internet, and Voice Over IP -- are being folded into a single Metro group under the presidency of Frank Plastina.

This isn't a surprise. With former CFO Frank Dunn installed as CEO, it looks as though Plastina (who was also widely discussed as a possible successor to John Roth) has adopted responsibility for the majority of products at Nortel -- a job he's been working into all year (see Nortel's Empty Room at the Top).

It also seems clear that one of Nortel's primary goals right now may not be eliminating products, but cutting costs in areas such as manufacturing.

For instance, today Nortel announced it will turn over the manufacture, integration, configuration, and testing of its DMS circuit switches to C-MAC Industries Inc. (NYSE: CMS) (see Nortel Dumps Some More). While Nortel will continue to support the DMS products, it will cut an undisclosed amount by selling to C-MAC its DMS plant in Research Triangle Park, N.C.

Nortel is taking similar cuts elsewhere. In cases in which it's not eliminating products, it's intent on trimming the cost of manufacturing and supporting them. In France, for instance, the company has rearranged a longstanding distribution deal with its subsidiary Matra Nortel Communications. In a series of new contracts, Nortel is selling the equipment distribution rights in France owned by that subsidiary to a third party (see Nortel Divesting).

Nortel also will reduce its component business by 50 percent and take restructuring charges against the facilities that close as a result of that move.

All this rearranging doesn't mean products won't continue to be cut. Nortel already has sold access and DSL gear worth roughly $397.5 million to Zhone Technologies Inc. (see Zhone Acquires Nortel's Access Gear). On September 11, it announced the sale (terms undisclosed) of its M6500 PBX line to the European Aeronautic Defence and Space Company (EADS) N.V. (NYSE/Toronto: NT). And yesterday, Nortel announced it's arranged to sell Clarify, a maker of customer relationship management software that it purchased in 2000 for about $2.1 billion.

Nortel is selling Clarify for $200 million in cash to Amdocs Ltd. (NYSE: DOX), which makes billing and customer support software for carriers. Nortel says the sale gives Amdocs all of the Clarify assets, including its office in San Jose, Calif. Clarify says it will be trimming its 1,000-person workforce in anticipation of the merger with Amdocs.

In all, Nortel plans to net about $700 million from the proceeds of all sales of non-core assets, which will be recorded in the fourth quarter of 2001 and the first quarter of 2002.

In the end, will all of this slicing and dicing be enough to save the company? On the whole, financial analysts say yes. "Our thesis that NT remains well positioned to survive the downturn and positively benefit in the next cycle remains intact," writes James Parmelee of Credit Suisse First Boston in a note today.

Others seem more concerned with the overall economy than with Nortel's state of health. "We are maintaining our Neutral rating on Nortel... The company continues to experience declines... However, we are encouraged by management's comments it believes carrier spending is approaching sustainable levels and that it is ahead in its restructuring process," writes Christin Armacost of SG Cowen Securities.

Investors, too, seem positively disposed to Nortel's news. In late-afternoon trading today, Nortel's stock was selling for $5.54, up 0.25 (4.73%), though Nortel shares certainly didn't participate as heavily as other stocks in a massive Nasdaq rally.

But in light of the missteps of the past years, many ex-employees remain skeptical of the company, noting that the financials don't convey the flight of top engineering talent. In fact, Nortel's biggest problem may now be morale -- either in drawing new talent or convincing its best employees to stick around for a recovery. Many folk interpret the installation of a CFO in Nortel's top spot as a signal that the company could find no one better and that its assets are up for auction. They express concern that defections of executives like Jules Meunier, former head of wireless products, show Nortel's loss of recruiting cachet.

Despite it all, Nortel's management seems bent to its task of carving the company down to a more manageable size. "We clearly have laid out a workplan," Frank Dunn told analysts last night. "Now we need to execute."

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com
Page 1 / 11   >   >>
HarveyMudd 12/4/2012 | 7:46:43 PM
re: Nortel: Can This Company Be Saved? Most of the Nortel's current economic problems stem from the enormous expenses it incurred in acquiring useless companies. Billions of dollars were lost without giving any advantage to Nortel.

For example, Nortel acquired an useless company by the name Alteon. There was nothing in this company that Nortel could have used, yet this company was acquired. The Nortel personnel who recommended the acquisition of useless companies should be punished.

Of all, the acquisition of any company in the Silicon Valley is frought with peril, but beinmg a Canadian Company it did not recognize the cast and characters of the founders and the Vcs, etc.

Nortel is a great company and it will survive. Unlike Cisco, Nortel has enough R&D resources to develop products.
Lopez 12/4/2012 | 7:46:42 PM
re: Nortel: Can This Company Be Saved? Most of the Nortel's current economic problems stem from the enormous expenses it incurred in acquiring useless companies. Billions of dollars were lost without giving any advantage to Nortel.

For example, Nortel acquired an useless company by the name Alteon. There was nothing in this company that Nortel could have used, yet this company was acquired. The Nortel personnel who recommended the acquisition of useless companies should be punished.

By all accounts, Nortel bought some second rate companies at first rate prices. After the Bay merger, Nortel tried to be too much like Cisco without having the experience. 1999 seemed like the year of one-up-man-ship. Of course noone questioned it then since we were riding high on the bubble.

Nortel is a great company and it will survive. Unlike Cisco, Nortel has enough R&D resources to develop products.

In my time at Nortel, none of the projects I worked on got out the door. There sure was a lot of R&D, but in the end noone wanted anything we built (or the converse, we weren't told to build the right thing).
detailsdetails 12/4/2012 | 7:46:41 PM
re: Nortel: Can This Company Be Saved? Harvey,

You must have some of that Mudd in your eyes. Alteon was the Web Switching leader when Nortel acquired the company. Selling product and generating revenue. Good list of customers as well. Then Nortel bought them. Today they appear to be losing market share and unable to maintain momentum. Could it be the Nortel management?

You want examples of bad acquisitions, look at XROS, Sonaoma, Architel, Coretek and Epicon. These companies had diddly if any product or revenue and have been shut down or will be soon.

Nortels problems lie squarely on the shoulders of the politically incestuous management and their belief that you are promoted based on seniority with the mother ship instead of capability.

Unlke Cisco, Nortel is on the verge of bankruptcy as competitors will now look to wipe it from the landscape.
LightCycle 12/4/2012 | 7:46:39 PM
re: Nortel: Can This Company Be Saved? > Alteon was the Web Switching leader when Nortel
> acquired the company.

Not quite.

If you track Alteon's path, they were already begining to falter when Nortel acquired them. If anything the Alteon folks did helluv a sales job on Nortel! ;-)

Nevertheless, Nortel's poor showing with Alteon is a perfect example of history repeating itself - Nortel acquired Bay Networks when Bay was seriously faltering. Plus Nortel's messed up channel strategy and lack of channel focused marketing didn't help either.

> You want examples of bad acquisitions, look at
> XROS, Sonaoma, Architel, Coretek and Epicon.

All these acquitions had vision behind them - just that the timming and market circumstances sucked.

I'm not sure if ANY company out there with an ounce of vision could have done better.

> Nortels problems lie squarely on the shoulders
> of the politically incestuous management and

Too true!

One other point is that even with all the cuts that have happened, Nortel has YET to put the "feer of god" into their Sales force; more than half of them deserve to be given the axe.
stryke_d 12/4/2012 | 7:46:38 PM
re: Nortel: Can This Company Be Saved? 1/2 the sales people and all the VPs I think was the quote.

You may be more than a little prophetic with this call LC.

stryke
Neophone 12/4/2012 | 7:46:38 PM
re: Nortel: Can This Company Be Saved? By all accounts, Nortel bought some second rate companies at first rate prices

....do any company sold out himself when he is
in top rate?
stryke_d 12/4/2012 | 7:46:37 PM
re: Nortel: Can This Company Be Saved? Hey we can't get them all ;-)

We have been kept awake by rumour/gossip central trying to figure out what's going on...

Pretty strong hints that Mom will come to the rescue...
LightCycle 12/4/2012 | 7:46:37 PM
re: Nortel: Can This Company Be Saved? > 1/2 the sales people and all the VPs I think was
> the quote.

Ahh yes, I stand corrected.

> > Nortel has YET to put the "feer of god" into

You missed my spello this time Stryke. I meant "fear", not feer.
light speed 12/4/2012 | 7:46:36 PM
re: Nortel: Can This Company Be Saved? dont think mom can do much. problem is very fundamental. morale is low and R&D guys leaving in droves because of dis-illusionment. friends i know are concern about going forward prospects and what it means to their jobs. every one waiting for a package or waiting to be fired. very depressing lot of people. quite sad. hope they come out as i have so money riding on them. stupid.
lightmaster 12/4/2012 | 7:46:34 PM
re: Nortel: Can This Company Be Saved? Neophone said:

"....do any company sold out himself when he is
in top rate?"

Buying a company when it is on top is not usually attractive as it costs way too much and the company on top has no reason to sell. The best return for the parent comes when you buy a company that is early in the cycle on the way up.

To do a good job of this, the aquiring company must do 3 things well:

1.Have the vision to recognize what products are needed early.
2.Do a good job in the due dillgence process to make sure the product and company are real.
3.Do a good job of integrating the aquired company without destroying it in the process.

The entire market seems to have been lacking in these skills for the past few years.
Page 1 / 11   >   >>
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE