Nortel CTO Quits as Woes Mount

Nortel Networks Corp. (NYSE/Toronto: NT) has confirmed the departure of CTO William R. Hawe, in what seems to be the latest event in an escalating crisis at the company.

Nortel says Hawe was replaced February 19 by Jules Meunier, a 22-year veteran of Nortel who's been serving as president of its Core Networks division.

Hawe was CTO at Bay Networks and came along for the same job when Bay was purchased by Nortel in 1998. Previously, he'd been CTO at Digital Equipment Corp.

Nortel's not sharing the reason for Hawe's departure. "I'd prefer to let Mr. Hawe comment on that himself," was all a Nortel spokesperson would say today. Hawe did not respond to voice mail messages at his Billerica, Mass., office.

"He's probably been briefed by his lawyers not to say anything," said one analyst, who asked for anonymity. But when pressed, the analyst refused to divulge anything further, even anonymously.

Analysts and reporters are intrigued but not surprised by hints of a darker reason behind Mr. Hawe's resignation. This morning, Canada's Ottawa Citizen and Montreal Gazette newspapers reported that Hawe made about US$18.4 million by cashing in 602,000 of his stock options on February 12, prior to leaving the company -- and three days prior to a call in which Nortel CEO John Roth drastically reduced the company's earnings guidance (see Nortel's Nasty Surprise).

Nortel acknowledged in a press release yesterday that Hawe sold the shares, stating, "It is not unusual for executives to exercise options once they choose to leave the Company" (see Nortel Explains "Option Activity")

In the same press release, Nortel defended separate option sales by two other executives, F. William Conner, president of Nortel's eBusiness Solutions division, and Chahram Bolouri, president of global operations. Both of these transactions -- Conner's for 240,000 options and Bolouri's for 120,000 -- are reportedly mentioned in at least one of three class-action lawsuits brought against Nortel earlier this week. The lawsuits were launched in the U.S. by shareholders claiming Nortel misrepresented its financial status in order to inflate its stock price.

Analysts concede that none of the Nortel executives' transactions was out of the ordinary, but they say the timing looks very bad. "All they're doing is giving the ambulance chasers more fuel," said one analyst, anonymously. "There's the perception out there that Nortel executives took the money and ran, leaving shareholders holding the bag."

Nortel may face other legal hassles, including a review by the Ontario Securities Commission, as reported in today's Toronto Globe and Mail newspaper. Reporters there say officials are looking into allegations that Roth "appears to have telegraphed rising concerns about the company's prospects" during a Webcast with RBC Dominion Securities Inc. on February 12 -- three days before the disclosure call, and while Nortel's deal to buy a key components plant from JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) was still in the works.

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

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Xcited01 12/4/2012 | 8:52:04 PM
re: Nortel CTO Quits as Woes Mount Roth lied, and then lied again. He mislead many folks. He is now spinning the blame and pointing at his own sales force. Orders do not turn into sales in 45 days. He knew he did not have orders for $8B for Q1 some time ago... He ripped off JDSU for $1B, and ripped other investors off for another $150B (since last fall). Roth is a Cheat. A Fake. A loser! The Nortel board should fire his ass!
whose 12/4/2012 | 8:52:03 PM
re: Nortel CTO Quits as Woes Mount Nortel's market value has more than doubled since John Roth has been CEO. He has changed the focus of the company from a legacy voice technology, manufacturer towards a packet, network solutions provider.

I believe Roth did no know, or perhaps did not believe the new numbers until Feb.

I believe that if you're in it for the long haul, Nortel under Roth is a good bet. The dot-com gen can't always expect instant gratification. Try reading "Built to Last" by James C. Collins and Jerry I. Porras.
whose 12/4/2012 | 8:52:02 PM
re: Nortel CTO Quits as Woes Mount ps.

Mary, I don't believe there is an "escalating crisis at the company." Nortel has existed for over 100 years - it has experience managing the downside of the economy - perhaps the only one of the big 3 that does.
Scott Raynovich 12/4/2012 | 8:52:01 PM
re: Nortel CTO Quits as Woes Mount The stock is down over 60% in a week, securities investigation under way, massive revenue+earnings shortfall announced, and the CEO is refusing to talk to the local press...

... I'd say Mary had adequate reason to refer to it as an "escalating crisis."
twistedcopper 12/4/2012 | 8:52:00 PM
re: Nortel CTO Quits as Woes Mount any ideas? rumors? start-up, maybe?

Wendigo 12/4/2012 | 8:52:00 PM
re: Nortel CTO Quits as Woes Mount
Regarding the JDS deal, one could argue that the value of the plant relates to the demand for its product. The two or three billion certainly isn't for the bricks and mortar.

The Nortel stock drop relates to less demand for its product. Some of that must also manifest itself in less demand for product of that JDS plant, and therefore less value.

voyeur 12/4/2012 | 8:51:58 PM
re: Nortel CTO Quits as Woes Mount Roth should have learned his lesson from McGinn. Roth probably knew better, but was hoping against hope. Going by how it fared for McGinn, he now has about 2 to 3 quarters to right the ship.

When it all comes down to it, the Street needs to take a share of the blame. In order to boost share price, CEO's must promise extravagant growth rates which they can only keep up for a few quarters at best, or artificially inflate at worst. When the chickens come home to roost, the shareholders and companies are left holding the bag, while the bankers (and then lawyers) get the kitty. What a shame!!!
Kirby 12/4/2012 | 8:51:57 PM
re: Nortel CTO Quits as Woes Mount Roth should be resign too.
I thinks the Nortel getting big problems by the lawsuits also price of shares continue going down.
That's very bad news for the Nortel shares holders.
Wonder 12/4/2012 | 8:51:56 PM
re: Nortel CTO Quits as Woes Mount Hi Lightreading:

You guys promised you'd reveal all of your backers (per Scott Raynovich posting.)

Are you now backing down from this? Are you waiting for the truth to come out other ways?

You guys really gotta reveal your affiliations - it explains so much of your editorial. The relationship between advertising and positive spin is nearly 100%...


The Entire Reading Public
rafaelg 12/4/2012 | 8:51:54 PM
re: Nortel CTO Quits as Woes Mount CTO cashes in on stock and leaves days before the announcement of lower gains,hum... Isn't this "illegal" as in "insider info"?
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