Nortel still on long road to recovery

Nortel was in the news this month for all the wrong reasons yet again. At the beginning of March, the network equipment provider said it would delay filing its 2006 annual report in order to make another round of financial restatements. Unlike past errors though, the corrections were expected to be minor and were made to cover acuarial errors in pension and retirement plans, rather than to correct nefarious accounting practices.

Just less than two weeks later, Nortel made the news again when several former executives, including ex-CEO Frank Dunn, were charged with fraud by U.S. and Canadian securities regulators.

The latest negative news makes it even easier to dismiss Nortel, a former networking high-flier brought down by the bursting of the technology market bubble and a subsequent accounting scandal. But that would be a mistake.

Nortel can’t be compared favourably to Cisco in terms of market performance, but the company’s Q4 2006 revenue of US$3.32 billion was an increase of more than 10 per cent over Q4 2005’s figure.

Nortel also has a unified communications alliance with Microsoft, which will see the two companies jointly develop offerings for the enterprise. Nortel can’t help but benefit from Microsoft’s sales and marketing savvy.

Another point in Nortel’s favour is there’s still no clear number two to Cisco in the enterprise networking market. No customer likes a vendor to have a monopoly, so presumably there’s an opening for a networking company like Nortel that can present itself as a viable alternative to Cisco.

What does Nortel need to do to improve? Better marketing would help. So would a renewed focus on the enterprise — something current Nortel president and CEO Mike Zafirovski emphasizied as part of Nortel’s turnaround plan last year, in addition to mobility and services.

If Nortel continues to follow the path it’s on, the company might finally get back into the news for all the right reasons in the near future.

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