x
Mergers & acquisitions

Nortel Shuffles the Numbers

Nortel Networks Corp. (NYSE/Toronto: NT) has revised revenue figures for its enterprise business, in a puzzling move that raises questions about the company's plans for its enterprise gear (see Nortel Makes Revisions).

Nortel just started breaking out enterprise revenues in its 8-K form filed with the U.S. Securities and Exchange Commission (SEC) on October 22, 2002. That form lists revenues for the past year sorted into the following newly defined segments: wireless networks, enterprise networks, wireline networks, optical networks, and other.

Today's restatement subtly reallocates sales figures between enterprise and wireline networks. The end result is that enterprise seems to have a stronger track record of year-over-year growth, although sales have been down this year along with every other area of Nortel's business.

Nortel refuses to comment on the reasons for the revision. But it comes on the heels of a major push the company's made to stake its claim in the enterprise space, first by establishing a totally separate enterprise division, then raising the profile of its enterprise-oriented voice-over-IP products (see Nortel: It's Enterprise VOIP!).

The emphasis had at least one analyst buzzing about a possible sale of the enterprise division last month (see Plastina Out in Nortel Reshuffle). The requirement that separate accounting be implemented for the enterprise segment seems to bolster that notion. After all, why would Nortel be so intent on breaking out its enterprise numbers and getting them just right? Could a sale be in the works?



It might be fun to think so, but others aren't jumping to that conclusion. "It's not obvious that they're preparing for a sale from these numbers," says Steve Kamman of CIBC World Markets. He admits he's puzzled by it all, though: "The segmentation's changed a couple of times. You have to take each set of numbers on its own. We're not quite sure what to do with this."

Another source says it's a mundane problem with Nortel's bean counters. "This has happened before," writes one Canadian equity analyst who asked not to be named. "[An] internal accountant misunderstood where a particular product line fit in when restating old results."

— Mary Jander, Senior Editor, Light Reading
www.lightreading.com
Packet Man 12/4/2012 | 9:22:03 PM
re: Nortel Shuffles the Numbers There used to be a high-tech company in Ottawa called Gandalf. They made some nice products but overall they seem to improperly position themselves on the Vision/Execution xy chart. Now they are gone.

I hold the same opinion for Nortel. Its just a matter of time. Nortel's debt doesn't help either.

I really hope I am wrong because they are one of the few high-tech Canadian firms we have and it would be a shame to lose them.

Me
Metropolitian 12/4/2012 | 9:22:03 PM
re: Nortel Shuffles the Numbers lr_fan,

1) Metropolitain is the french spelling.

2) You are correct, Nortel was getting most of its revenue from optical networking and Cisco was getting it from entreprise networking.

My beef with Nortel is that Cisco made very well calculated acquistions in the last couple of years that strengthed or expanded its core business. And after the internet bubble burst, they still had 20 billion dollars in the bank (which gives them many years of breathing space to ride out this economic downturn). In other words, John Chambers has a long term business strategy and spent Cisco's money like it was his own.

Nortel, on the other hand, made some extremely stupid acquistions that did nothing to expand or strengthen its core business. Tell what was the purpose of buying Clarify, Alteon, or Promatory ?
All these companies were bought for billions and then resold at a loss of -90% each. John Roth spent Nortel's money (ala Paul Stern) to prop up the stock price so that after his 5 year term was up, he could cash his options at a nice premium and did not really care what happened afterwards. Roth spent Nortel's money like an escapee from an insane asylum with a platinium credit card.

As a result of his gross imcompetence, every Nortel employee past and present is subjected to a quarterly game of Russian roulette to see who will keep or lose their jobs.

In summary, my comparison was not between the actual different business spaces (optical vs enterprise), but rather business strategies (longs term vs short term) of the two companies.

Regards Metro
lr_fan 12/4/2012 | 9:22:06 PM
re: Nortel Shuffles the Numbers OK. 2 Issues with this post.

1. What is a Metropolitian? This word does not exist in any dictionary I can find.

2. "Cisco has endured the same economic hardship and has only layoff'ed minimal numbers of employees in comparison."

This is very misleading. Nortel relied on optical networking before those layoffs. It was the undisputed optical leader. On the other hand Cisco, relied on enterprise. 10% MAX of Cisco's revenue came from optical. Therefore, I say that Cisco has not experienced the same micro economic/market conditions as Nortel. Comments?
Metropolitian 12/4/2012 | 9:22:07 PM
re: Nortel Shuffles the Numbers Future,

I agree with you 100%, striving for #2 is a very defeatist strategy. The only instance, I can think of, where it worked in gaining market share was for Avis Rent-a-car.

The irony of being #2, is quite often the #2 players offers better and more advanced technology. The #1 players usually invest more in marketing rather than R&D.

Nortel reminds of Apple computer (another #2 player); excellent products with a modest market share.

My original definition of enterprise was routers and data. But you are correct again, that voice is a key element as well, which slipped my mind.

Nortel is out of the access business with the closure of that division in Jan 2001. Their main voice thrust currently is VoiP. This is a good area to place your bets, but the current contraction of the industry is certainly limiting growth here.

Regards Metro


Metropolitian 12/4/2012 | 9:22:07 PM
re: Nortel Shuffles the Numbers Future,

I agree with you 100%, striving for #2 is a very defeatist strategy. The only instance, I can think of, where it worked in gaining market share was for Avis Rent-a-car.

The irony of being #2, is quite often the #2 players offers better and more advanced technology. The #1 players usually invest more in marketing rather than R&D.

Nortel reminds of Apple computer (another #2 player); excellent products with a modest market share.

My original definition of enterprise was routers and data. But you are correct again, that voice is a key element as well, which slipped my mind.

Nortel is out of the access business with the closure of that division in Jan 2001. Their main voice thrust currently is VoiP. This is a good area to place your bets, but the current contraction of the industry is certainly limiting growth here.

Regards Metro


futureisbright 12/4/2012 | 9:22:09 PM
re: Nortel Shuffles the Numbers Metro

To be a clear number two in any market, meaning with no real chance of becoming number 1 sounds to me like piss poor strategy. I wish Nortel management had a little more imagination...

If you define enterprise = router, then Cisco absolutely dominates the market, and the alternative to number 2 is to be out of the market.

If you define enterprise = data, then it is not so clear anymore. There are more diverse players, including Nortel, and a lot greater nuance in market definition.

If you define enterprise = voice + data, I am not so sure that Cisco is the dominant player (I have not crunched these numbers). Clearly, Nortel has a strong enterprise voice position, the one of the traditional TDM kind, as well as the VoIP kind.

In that latter definition, Nortel has a lot of potential for adding value to the enterprise in a way that Cisco still cannot.

So, Nortel, how about targeting to become the number one player in high value telecom applications for the enterprise regardless of underlying technology?

Is someone (at Nortel) listening?
Metropolitian 12/4/2012 | 9:22:20 PM
re: Nortel Shuffles the Numbers Future,

------
Nortel's enterprise business plan, publicly announced is to be a clear number two, or second source to Cisco.

------

Cisco is the defacto standard in enterprise networking equipment, so the number #2 spot is not worth much in terms of revenue.

It is analogous to saying the Linux OS is the #2 operating system for PCs. Even though Linux has many merits, Microsoft's Windows is the defacto standard (used in 99% of PCs).

Metro
futureisbright 12/4/2012 | 9:22:26 PM
re: Nortel Shuffles the Numbers DO YOU REALLY MEAN TO SAY NORTEL HAD OR HAS A BUSINESS PLAN, GIVE ME A BREAK !

------
Nortel's enterrpise business plan, publicly announced is to be a clear number two, or second source to Cisco.

optera 12/4/2012 | 9:22:31 PM
re: Nortel Shuffles the Numbers ..... may not survive this telecom winter anyway. the best technology does not win in teh end, it is the best business plan. period. ....



DO YOU REALLY MEAN TO SAY NORTEL HAD OR HAS A BUSINESS PLAN, GIVE ME A BREAK !
PacketGuy 12/4/2012 | 9:22:54 PM
re: Nortel Shuffles the Numbers Nortel's Enterprise busiess (essentially, Bay Networks) got crushed by cisco when they were two years late getting a 10/100 switch out the door - circa 1997. There are still have some big, loyal existing customers that buy to expand their networks, but as far as competing for new business with leading edge products, they are done.

Cisco wins the new business when a customer wants one-stop shopping. Foundry, Extreme, NetScreen, and others win if the customers want the best products available. Foundry does best in high-performance, high-bandwidth applications, and Extreme does well in low-cost closet connectivity.
bitdropper 12/4/2012 | 9:22:55 PM
re: Nortel Shuffles the Numbers "The phrase "rearranging the deckchairs on the Titanic" suddenly comes to mind ......"

-------------------------------------------------

Funny post.

We used to refer to this at NT as: rotating a set of bald tires.
Metropolitian 12/4/2012 | 9:22:56 PM
re: Nortel Shuffles the Numbers Reindeer,

Unfortunately Nortel's lack of a good business plan has resulted in +60,000 people now being unemployed since Jan 2001.

If Nortel were properly managed, they could rely on the revenues of one strong division while the other divisions recover. But this is not the case as current layoffs, divestures of recent acquisitions and other last ditch short term measures have shown.

Cisco has endured the same economic hardship and has only layoff'ed minimal numbers of employees in comparison.

This current mess reminds me of the Paul Stern days magnified 10 times. At that time, Nortel was fortunate to have Jean Monty come along and clean up Stern's mess and set-up the stage for the successful Nortel of the late 1990's. It is a shame John Roth got drunk with power and Nortel's success and steer away from Jean Monty's vision and paved the road to Nortel's demise.
Reindeer 12/4/2012 | 9:22:57 PM
re: Nortel Shuffles the Numbers "good thing they have those enterprise pbx/telephony sales to rely on...for now right?"

that is the whole point behind being a large diversified company such as nortel. they can feed off one business while others are restructuring. quite obvious I would think. the other smaller companies with the "gee whiz" technology may not survive this telecom winter anyway. the best technology does not win in teh end, it is the best business plan. period.
dano4677 12/4/2012 | 9:23:08 PM
re: Nortel Shuffles the Numbers "Nortel has substantial products to serve the customers on a solid basis. Its quality of products unquestionably the best."

-this is hilarious...thanks for the laugh..you just made my morning..so how is that position at Nortel working out for you these days? "unquestionably the best" must refer to platforms other than the bps2k, pp8600/8100, and contivity in the enterprise space...i am struggling to think of what exactly that leaves behind...

Nortel has slipped into no-mans land when it comes to innovation and independence in the enterprise space. the cli on both the bps and the contivity ironically resembles that of it's strongest competitor in recent revs, customer service and web-based information/configuration document research/retrieval is horrific (on a good day), and new feature integration is always a day late and a dollar short.

nortel has never been interested in what the enterprise customer needs and/or wants and for this reason, it will always remain a sub-par, second/third choice vendor for enterprise L2/L3.

good thing they have those enterprise pbx/telephony sales to rely on...for now right?

cheers
Reindeer 12/4/2012 | 9:23:09 PM
re: Nortel Shuffles the Numbers oh please. nortel starts to get their financial house in order and everyone freaks out. they have recognized the problems and are correcting them even though the decisions are hard. titanic? not.
wayland_smithy 12/4/2012 | 9:23:13 PM
re: Nortel Shuffles the Numbers The phrase "rearranging the deckchairs on the Titanic" suddenly comes to mind ......
BobbyMax 12/4/2012 | 9:23:14 PM
re: Nortel Shuffles the Numbers It is good move on the part of Nortel so that different streams of revenues can be identified more closely.

Nortel has substantial products to serve the customers on a solid basis. Its quality of products unquestionably the best.
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE