In an attempt to impress enterprise customers, Nortel Networks Corp. has unveiled a new corporate structure. But it’s too soon to say if this important move will help the firm, according to industry analysts.
The beleaguered Brampton, Ont.-based network gear maker on Oct. 3 said it would scrap its previous business line triumvirate in favour of a four-tiered approach.
Gone are the Metro and Enterprise Networks and the Optical Longhaul Networks divisions. The Wireless section remains and the company introduced three new divisions: Wireline Networks, Enterprise Networks and Optical Networks.
“As we continue to position Nortel Networks for profitability, the changes we are announcing…will result in an enhanced performance-driven business model that will ensure greater accountability and customer alignment,” said CEO Frank Dunn in a prepared statement.
Nortel’s fortunes have faded in the past two years. Once a Bay Street darling, its stock tanked in 2001 alongside decreased spending among its core customers – phone companies. Whereas a Nortel share cost more than $100 in its heyday, the stock closed below $0.80 on the Toronto Stock Exchange Thursday.
Will this four-way corporate structure bring Nortel back from the brink? Only time will tell, said Warren Chaisatien, senior analyst with IDC Canada Ltd. in Toronto, adding that the new set up “is important. With the old structure, there wasn’t much dedicated to the enterprise. We all know the enterprise market has long been dominated by Cisco (Systems Inc., a competing network gear maker). I think [Nortel needs] to get that business unit up and running quick in order to compete…But it remains to be seen how well they’ll do in this marketplace.”
If the Enterprise division fails to catch on with corporate spenders, Nortel has a tough decision to make, Chaisatien said.
“I wouldn’t be surprised if Nortel had to bite the bullet and do something about [the Enterprise division] – maybe get rid of it or streamline it even more.”
He pointed out that Nortel chopped the Enterprise/Metro division in half, porting the latter section into Wireline. It’s a noteworthy move; the Enterprise/Metro division accounted for 45 per cent of the firm’s revenue during the first six months of 2002, according to IDC Canada.
“We don’t know how much of that 45 per cent is coming from Metro and how much is from Enterprise,” Chaisatien said. “We’ll see that at the end of this quarter, when the financial results hit the market…My gut feeling tells me the enterprise portion was tiny.”
Nortel’s big idea is to break out the enterprise section and pay more attention to this market, Chaisatien said, adding that the company faces an uphill battle.
“Hopefully [customers will] see a difference, but it requires a lot of marketing and communications. It may be difficult for the company to get the message (that Nortel is dedicated to the enterprise) across.”
Still, it’s no longer in Nortel’s best interests to rely on carriers for the bulk of its revenue, analysts said, citing decreased capital expenditures among service providers.
“If you look at the figures for North America, the capex as a percentage of total carrier revenue have gone down from a high of 40 per cent in 2000 to about 15 to 20 per cent this year,” said Ronald Gruia, an analyst with Frost & Sullivan in Toronto. “And it’s going to be flat for quite a while…Some people say what’s going to help take this market out of the quagmire it’s in, is the enterprise.”
But Gruia questioned the logic behind another Nortel announcement made Thursday. Frank Plastina, formerly the president of Metro and Enterprise Networks, has left the company.
It was a little bit shocking,” Gruia said. “I didn’t expect Plastina to leave like that.”
Plastina seemed to be next in line for the CEO position. He spent 15 years with the company, shuttling about the divisions, ostensibly to gain the breadth of experience a corporate leader would require.
“He would have been a good guy to have as CEO,” Gruia said. “I thought they were grooming him for that.”