Nortel promises to get back on track

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Top Nortel Networks Corp. executives admitted Thursday that past financial problems had slowed the company’s growth, but said the new management team had a clear strategy to turn the telecommunication equipment maker’s fortune around.

“Accounting scandals and other problems has made it very difficult for Nortel to concentrate on more contemporary issues of business,” said Nortel CEO Mike Zafirovski.

He said those issues left a leadership void and affected Nortel’s ability to keep on top industry trends.

“This cannot be fixed overnight,” the Nortel chief said, adding that his management team was aware of the challenges ahead and had “a plan to win.”

Zafirovski was addressing a press conference at the company’s new headquarters in Toronto.

His views were echoed by another top Nortel official.

“We were not able to concentrate on the present like other companies who managed to change with the industry,” said John Roese, chief technology officer (CTO) at Nortel.

Roese (pronounced Rose) said, unlike other tech-based companies, Nortel was not able to concentrate on testing methodology and establishing best practices.

But, he said, “there is no lack of talent and innovation” in the company.

On Wednesday, Zafirovski marked his first year at the helm of Nortel. Ironically, he also had to face that same day, shareholders who have seen their investments decline by as much as 35 per cent in 2006.

Among his top priorities, Zafirovski said, was to increase Nortel’s operating margin, which is at one per cent today, to 13 per cent by 2008.

To achieve this, Nortel has to hike its gross profits to 43 per cent from the current 38 per cent, said Zafirovski.

Nortel sees opportunities in providing voice over Internet protocol (VoIP) equipment to business clients and its alliance with Microsoft Corp.

Zafirovski’s said the Microsoft tie-up would combine Nortel’s communication and services with the software company’s leadership in the application space.

Roese said the alliance was a realization that voice applications were going to undergo a major shift and Nortel had to align itself with the technology’s key players. The partnership, he said, placed Nortel in a leadership position for the next breed of voice applications.

Another aspect of Nortel’s recovery strategy is a focus on products addressing mobility and convergence, enterprise transformation, and services and solutions.

The company’s goal is to streamline internal processes and reach $1.5 billion in operating margin by 2008.

To achieve this, Nortel is consolidating more than 100 operational sites. So far the initiative has created two so-called centres of excellence in Mexico and Turkey. Zafirovski said these facilities would provide technical support services to Nortel clients.

Nortel also cut down by 70 per cent some 700 IT applications that supported its operations. The reduction will result in potential savings of $20 million a year.

The company’s supply chain team also renegotiated $700 million of material buy contracts which resulted in $100 million savings.

In February 2004, investors hoped the company had turned a corner after a drastic downturn in the market the previous year. An accounting crisis surfaced in March that year had led to lawsuits and criminal investigations.

The company once more restated financial results early this year and last week, Nortel lowered its forecast for revenue. However, Zafirovski said, the company had people who were aware of what needed to be done. “We just need to get back on track.”

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