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Financial

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

pingu 12/4/2012 | 8:51:01 PM
re: Nortel CTO Quits as Woes Mount Hanover_Fist,

You talk about spewing crap. Reading your post I can see you are an authority.

I would gladly welcome 1,000s if not millions of ng_mui's into my country, and I would be equally glad to see you deported.

Steve Saunders, any progress on an "Ignore/Ban Poster" feature?
Cormierd 12/4/2012 | 8:51:37 PM
re: Nortel CTO Quits as Woes Mount Nortel CTO Quits as Woes Mount?
Give me a break, he came from Bay and was simply waiting to vest before he left, it's that simple.

Nortel is strong and will continue to be so. What are the analist even thinking, Lucent does not even have a CEO and is now selling there Optical business, and these guys have Nortel's stock not much higher than Lucents?

Nortel is the Carrier choice and will continue to be for many years to come.
ng_mui 12/4/2012 | 8:51:37 PM
re: Nortel CTO Quits as Woes Mount If you don't like what you read - then don't read it!

I for one love reading the gossip, and of course lightreading is full of marketing nonsense, but one thing it does give is an overall
picture of what's happening in the industry.

Don't waste your time reading it - go away!!
Hanover_Fist 12/4/2012 | 8:51:38 PM
re: Nortel CTO Quits as Woes Mount LightReading's integrity is about as true as O.J. Simpson's claim that he's looking for Nicole's killer! (As long as the 'killer' plays golf, O.J. should have no problem.)

And then there's LightReading's little problem with accuracy!

LightReading is the National Enquirer of the Technolgy Industry. The only thing this website has going for it is its "In your face attitude."

The old saying, "If you can't blind them with brilliance, dazzle them with bullshit." and boy, have I read a lot of bullshit here.

What kind of technical background do the reporters have here? How many of them have actually worked with the products they report on, let alone seen them? My guess is the closest they've come to installing networking equipment is when they plug their modem cable in!!!

I guess as long as advertisers continue to pay (and marketing people continue to write data sheets) LightReading.com will stay in business.
WolfLarsen 12/4/2012 | 8:51:39 PM
re: Nortel CTO Quits as Woes Mount

Wonder,
I don't know if Lighreading is biased or not.

I don't care.

In a free market, economics, supply, demand and perception of futures effect the value of everything. In the free information market, Lightreading will have to maintain a level of integrity or the market (us) will no longer value the information presented by them. The market space will cleanse itself.

The important thing to realize is that your demands to see the backers are similar to artificially controlling the market. I for one will not feel any more or less secure about the information presented here if every penny of ad $ was openly displayed.

The integrity of the Light Reading content will be determined by the acceptance and validation of the information by its consumers.

optical_maverick 12/4/2012 | 8:51:40 PM
re: Nortel CTO Quits as Woes Mount what ev.
Wonder 12/4/2012 | 8:51:42 PM
re: Nortel CTO Quits as Woes Mount Steve - I am sooo sorry you're sick of the whole advertising thing - so why don't you bring it to an end?:

You hammer Cisco, Nortel and Lucent with nothing but lies (my favorite - "FIVE sources indicating Cisco was going to drop its optical switch..." FIVE people! Who were they - four of the Texan prison escapees and a pathological liar?) You also go after a bunch of start-ups with no appreciation of the truth.

You and your cronies are an embarrassment to the hardworking people in optical networking. And the more you try to harm those companies who don't advertise with you, the less advertising dollars you will get. What goes around comes around.



>>> "The Entrire Reading Public"... speak for yourself. What are you
waiting for???

I am so tired of this shit about who sponsors LightReading. I read the
comments to find out more about the recent events at Nortel, to see
who agrees with LR, who doesn't and why. I hate that I have to waste
my time to see your crying about backers.

Let's take one minute and examine the obvious- Do you see all the
advertisements on the site- those are their backers. Do you see the
sponsor company on the weekly updates- that company is a backer. Do
you see all the job postings- everyone listed there is a backer. There is
no secret who they advertisers are and they are paying the bills. I am
sure LightReading does not discrimnate who they will take money from.

LR is a forum for discussion- if you don't like what you read- tough. I
don't like a lot of things I read. If it bothers you so much don't visit the
site. If you read something you don't agree with- post a reply. Let your
voice be heard but stop blaming the messenger.
T422 12/4/2012 | 8:51:47 PM
re: Nortel CTO Quits as Woes Mount I don't know if it is illegal but I will say it is a little fishy. In defense of the execs, If you were in their same position, would you do the same thing? I think so. Having inside information does not constitute anything illegal. Now if numbers were made up, projections bolstered, etc. strictly to raise a stock price and to make money at others expense...then that to me is illegal.
LM 12/4/2012 | 8:51:47 PM
re: Nortel CTO Quits as Woes Mount "The Entrire Reading Public"... speak for yourself. What are you waiting for???

I am so tired of this shit about who sponsors LightReading. I read the comments to find out more about the recent events at Nortel, to see who agrees with LR, who doesn't and why. I hate that I have to waste my time to see your crying about backers.

Let's take one minute and examine the obvious- Do you see all the advertisements on the site- those are their backers. Do you see the sponsor company on the weekly updates- that company is a backer. Do you see all the job postings- everyone listed there is a backer. There is no secret who they advertisers are and they are paying the bills. I am sure LightReading does not discrimnate who they will take money from.

LR is a forum for discussion- if you don't like what you read- tough. I don't like a lot of things I read. If it bothers you so much don't visit the site. If you read something you don't agree with- post a reply. Let your voice be heard but stop blaming the messenger.
ackronym 12/4/2012 | 8:51:52 PM
re: Nortel CTO Quits as Woes Mount Forget the option cashing and telegraphing of visibility..those things are part of the industry. But what is scary is that Nortel's mgmt gave 30% guidance for the 2001 and THREE weeks later revised it to 10%. Either Roth is a complete imbecile and he does not know his customers at all or he has been lying about visibility all along. I don't know which one is worse...!!
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"?
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%...

Thanks,

The Entire Reading Public
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.
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!!!
twistedcopper 12/4/2012 | 8:52:00 PM
re: Nortel CTO Quits as Woes Mount any ideas? rumors? start-up, maybe?

-twisted
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.

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."
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.
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.
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!
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