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
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jpm5150 12/4/2012 | 7:46:33 PM
re: Nortel: Can This Company Be Saved? HarveyMudd:
You say that Nortel is a great company? Holy cow that is extremely naive. Ask any of the 45,000 people who have or will loose their job from this. Moreover, the priceless duress and stress they have caused to families and individuals. These are all good people with great skills that have had their lives torn apart by a naive and unmanageable company. The folks who are left have no motivation and only stay there because nobody else is hiring.
So how is this different from Cisco or Lucent? Cisco said yesterday "they are doing ok" and Lucent is on track to break even in 1Q. So ask yourself again if Nortel is a great company and will survive? The answer is: "You are the weakest link!" Good Bye!
Metadata123 12/4/2012 | 7:46:33 PM
re: Nortel: Can This Company Be Saved? Alteon is just one of the countless junk companies that Nortel acquired. It was such a sham that many of the originals from Alteon hung on in there (with Nortel) since they could not find anything else in the Valley. These include Dominic Orr, Selena Lo, and Bart Burstein. Of these, the first two has been forced out while Bart hangs on by the thinnest of threads. From the Nortel side, the acquisition was presided on by the Finance side of the house headed by George Cooney, who may have been singularly responsible for the scope of the shameful write-offs that Nortel had to do lately. Why he still has a job continues to amaze most people at Nortel. Also, he was only one removed from Frank Dunn (the present CEO) when he did that. CooneyGÇÖs entire team of clowns has been a standing joke in the company. And it is pretty apparent that Frank Dunn signed off on the Alteon deal. As for others who may have been involved, most of the blame should be laid at the feet of the Anil Khatod organization, which has since been dismembered and destroyed. It is the fervent hope (of every Nortel well wisher) that remnants of his organization who have found homes in Wireless and Optical be smoked out and expelled (like Bush plans to do to bin Laden).

It is sad to hear that people like Jules Meunier has left the company. One hopes that Frank Plastina, the boy genius, can eliminate more of the rot and preserve some of the goodness. Alas, he is just a child and is limited in his knowledge and experience. But he is any day a better choice than most of the jokers at the helm.
opticalwatcher 12/4/2012 | 7:46:32 PM
re: Nortel: Can This Company Be Saved? Well, this is just my two cents, but here it goes.
Cisco vs Lu vs Nortel
Products? yes, much the same, some different. No arguments there. They compete generally in the same space, for the same clients.
Business model? Whoa, hold the horses. Way different. Why? Well, speaking in very general terms Cisco is a lean machine. No R&D, and no hassles. For all intense purposes they behave much like a dell business model. No baggage, no junk when things dont work out. Without R&D you eliminate much of the aquisitions that lu and nortel are now choking on.
R&D? Well, R&D is what makes the world go around (ok, money to). Without someone doing the R&D Cisco wouldnt have a product to sell. But lu and nortel have created business monsters built on "empire building" mental psycho's. How about this for an example: whole groups dedicated only to one supervisor testing something merely at the direction of said supervisor, with no coherency with the overall goals of the project, only the put the results of this testing into a file cabinet. To anyone reading this message who has worked at Lu or Nortel, sound familiar?

Lu and Nortel are choking on the junk they bought, on the business model they have embraced, and on the poor management that is bailing out left and right as I write this (all with golden parachuts of course)who were to busy building departments within departments rather than products that worked and were sellable. Will they survive? probably not, at least, not the way we have grown to know and hate (whoops, I mean love) them. If they survive this downturn, they will be much different companies.

I would like to wish all my fellow workers in these once great (even if it was all smoke and mirrors) companies luck in surviving, finding new companies to believe in, and taking care of your loved ones in the process. In my mind, Mcginn and Roth are no different than common crooks.
mrcasual 12/4/2012 | 7:46:32 PM
re: Nortel: Can This Company Be Saved? I can't speak for LU or CISCO, but Nortel is (was?) definitely over managed.

In my various job functions, both management and non-management, at Nortel it was always funny to look up the org chart and ask the question "Is this person adding value or helping me do my job?"

The answer changed from yes to know very low on the totem pole.

There has been lots of analysis about who or what have been the cause of Nortel's problems. In the final analysis, the blame has to rest squarely on the shoulders of the executive management.

It's their job to set direction and make delivery happen. This encompasses every aspect of the job, from making sure people have desks to having the right management structure and people.

Nortel certainly had (and still has) their share of "bad" workers, but even with the best set of people in the world working on a project, without good leadership above them it is pretty much doomed to failure.
seabizkit 12/4/2012 | 7:46:30 PM
re: Nortel: Can This Company Be Saved? Qtera and Xros, watersheds in suckerhood, Diner, Resnick, Tabaska, bloated ticks on the carcass Nortel.
77thlightguy 12/4/2012 | 7:46:28 PM
re: Nortel: Can This Company Be Saved? If they can get him: Neutron Jack. At this point in his career, and given the mess, and low probability of success, it would be a very long shot...it would be a massive exercise of his 1,2 or fix, sell, or dispose rule.
broadbandboy 12/4/2012 | 7:46:26 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."

What about Shasta? Are they still market leader? I hear about big contracts in Australia and Korea. NT only paid about $2-300 million, so did that one pay for itself?

I'm not a Nortel guy, so I don't have the real scoop. Maybe one of you inside guys can help me out...
asmo 12/4/2012 | 7:46:26 PM
re: Nortel: Can This Company Be Saved? Opticalwatcher,

I agreed with most of what you said apart from that Cisco has no R&D. Although they aquire companies there is substantive R&D. I think people often under-estimate the amount of internal development that goes on inside Cisco, both on current and next-gen stuff.

I use to work for Nortel and now Cisco so I have some knowledge about both companies.

Apart from that point your post was spot on.


BlueWater66 12/4/2012 | 7:46:25 PM
re: Nortel: Can This Company Be Saved? I remember when Northern Telecom, AT&T and Alcatel controlled almost all the telecom equipment market. I also remember when Sperry, Amdahl and all the other mainframe computer companies totally controlled their market. I think there is a lot of common features. Many of the people laid-off from both Lucent and Nortel have never worked anywhere else. Most of their products are large, expensive and have any mainframe type features.

The world is changing fast!
allrounder 12/4/2012 | 7:46:24 PM
re: Nortel: Can This Company Be Saved? I am 100% behind the notion NT has the easiest interview in the hi-tech world.

I worked for both Nortel and Cisco. The interview with NT was so easy-going and useless. I don't think my skills were fully recognized. That made me feel bad because everybody was offered on years of experience no matter what an idiot you were. In Contrary, the interview with Cisco was very different. They asked me to code programs on the whiteboard and asked very detailed tech questions. I list questions asked by Nortel and Cisco below. You tell the difference.

NT Interview Questions:
1. Introduce yourself. (of course full of best words I can get).
2. What is your interest? (of course the job I am applying).
3. Have you worked in a team and how do you like it? (of course yes and love to work with others).
4. What is the most difficult technical problem you encountered and how did solve it? (grab one in my mind and stress hardworking, teamwork and personal intellegience).
5. Do you have questions for us? (Yes. What is Nortel's standing in Fortune 500 list?)

And I got a job as senior software designer.

Cisco Interview Questions:
1. Tell me what POSIX stands for. (Portable Open Standard Interface - UNIX like)
2. What's the difference between semaphore and intlock? Which one is better?
3. How do you avoid multiple access to a flash driver?
4. What are the three most important field in IP header?
5. What TOL is used for?
6. How an IP packet is routed?
7. How the dual-port ram works?
8. What is ATM PVC and SVC?
9. Write a C program on whiteboard to calculate the checksum of the IP header.
10. Write a C program to flip a 32-bit integer.
and more.

I got hired by Cisco at the same posiiton.

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