Nortel change is a good sign

Last issue’s editorial on Nortel was perhaps a bit too timely. Like most non-daily publications, Network World Canada hits the streets days after it’s been written, and as luck would have it, soon after the last editorial on Nortel’s new-found stability was put to bed, the company switched CEOs.

Despite the change at the helm, the last editorial’s point still holds true — Nortel has turned the corner and is now focusing on growing its business rather than on cleaning up its financial house. The change in CEOs is another sign of a return to business as usual.

Bill Owens, Nortel’s departing CEO, came to the company with no telecom background. Nortel brought him in for his reputation as a steady, honest hand in the wake of a financial scandal that forced Nortel to restate several years worth of revenue. Owens succeeded admirably in cleaning up the financial mess. Once Owens finished the job he was brought in to do, it was time for Nortel to turn to someone with telecom industry experience and that’s exactly what the company did.

New CEO Mike Zafirovski spent 25 years with General Electric in a number of senior positions before moving to Motorola in 2000. Zafirovski’s most recent position at Motorola was president and chief operating officer.

Zafirovski’s appointment ran into a bit of a hitch soon after it was announced when Motorola claimed he had breached a severance agreement he’d signed with Motorola prior to joining Nortel. At press time it didn’t appear the issue would stand in the way of Zafirovski’s appointment at Nortel.

One troubling issue in the executive change is that Owens hadn’t given any sign that he was about to step down as CEO. The switch also contributes to the image of Nortel’s executive positions as a game of musical chairs. The company has had three CEOs in the past 18 months. And two other prominent executive hires, former president and COO Gary Daichendt and CTO Gary Kunis, left Nortel in June, 2004, only three months after being hired away from Cisco. Zafirovski needs to hold down the CEO position for a while to build some faith in Nortel’s executives.

While Nortel turned a profit in the second quarter of 2005, there’s still a lot of work for Zafirovski to do. The company’s certainly in better financial shape than it was a year ago. Nortel has US$3 billion in the bank, but much of that could be wiped out by pending shareholder lawsuits and Securities and Exchange Commission fines. It’s unlikely Nortel will be going on a spending spree to fill in any strategic holes.

Nortel has to continue making gains in the enterprise. Those gains will almost certainly have to come from selling gear designed for voice over IP, because Nortel’s market share in enterprise data gear is sliding.

Nortel also has to continue getting leaner, meaner and more focused. The recently announced sale of the company’s Brampton campus to Rogers is a good sign that Nortel is taking the right steps to re-size and re-focus its business.

In the late 1990s Nortel had aspirations of being the next Cisco. That dream seems unlikely to ever become reality, but if Nortel stays focused on what it does best — carrier equipment and voice in the enterprise — the company can continue to be a significant player in the telecommunications market.

QuickLink: 052006

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