Telco players ride out storm

On April 25, telecommunications equipment supplier JDS Uniphase Corp. announced it was slashing 5,000 jobs as part of a worldwide restructuring plan. In early March, Nortel Networks announced it would be cutting 8,500 people off its payroll. The moves are only two in a series of drastic belt-tightening measures by equipment players that have seen the markets for their products dry up in recent months.

Eventually, the slashing and burning will come to an end – but will the telecom giants have learned anything from the downturn?

Analysts don’t seem to think so.

Lawrence Surtees, a senior telecommunications analyst with IDC Canada Ltd. in Toronto, said that a history of focusing on short-term objectives and issuing “knee-jerk reactions” to problems does not bode well for these companies, particularly Nortel.

“This is not the first time, nor will it likely be the last time, that [Nortel] chops thousands of jobs in dribs and drabs,” Surtees said. “They’ve done this continuously at least for the last two decades.”

He added that historically, when Nortel experiences rough times and decides it’s going to chop jobs, “it can’t come out to the public and to its employees and say, ‘We’re chopping this many jobs, done, let’s get on with life.’ These are people who prolong the agony like plucking the wings off a fly.”

The impact that this behaviour has on employee morale is a poison to the environment, Surtees said.

“It doesn’t matter what the broader climate is, or what the regime. There’s something particular to that culture that they go through this protracted (process),” he said. “I don’t believe that through the last two, almost three, decades that they’ve learned anything.”

Iain Grant, an analyst with The Yankee Group in Canada in Brockville, Ont., said telecom equipment players would stand a better chance of withstanding the bad times by better understanding their clients’ needs. Grant was not waiting for his phone to ring off the hook with such inquiries from the likes of JDS Uniphase, however.

“(It’s) important for JDS to look beyond its initial customer and try to understand the market dynamics of [its] customer’s customer, which will better help [them] plan. We are, of course, in the business of doing that, and every time we have suggested to JDS that they may want to look more deeply into the market, they said, ‘We don’t need to, we’re busy enough as it is.'”

A trend in Nortel’s recent past that Surtees said points to an uncertain future is the company’s move to outsource its manufacturing.

“You have to ask yourself, what are these people making anymore? The manufacturing plant in Calgary is an exception. They contract out to underpaid Malaysians and Chinese. This company does not make stuff, increasingly.”

The result, according to Surtees, is that Nortel has lost touch with the day-to-day operations that enable it to properly plan for the future.

“[Nortel is] in this sort of Disneyland-like ivory tower out in Brampton, (Ont., location of Nortel’s headquarters.]…I don’t see how all of a sudden this episode is going to be any different.”

Surtees added, however, that there is some good news on the horizon for Nortel and JDS Uniphase: their markets are still growing.

“[Nortel] is going to have more revenue in 2001. It’s a question of how they manage all this,” he said.

On the subject of JDS, Surtees expects more of the company’s business to go to Alcatel, as that company gets further into the optical arena. And while this will help JDS’s fortunes to rise once again, don’t expect this to happen too soon, he added.

“It’s a question of when people will need, and start buying, more optical gear. It might be two years out, because these [potential customers] are going to have to get money to do this stuff, and I don’t think it will be easy to get money until sometime late next year.”

Both Nortel Networks and JDS Uniphase declined to comment for this story.