Channel Marker

Nov 11 2008   8:11PM GMT

Nortel in too deep; analysts say sale coming

rivkalittle Rivka Little Profile: rivkalittle

Nortel is in bigger trouble than some even suspected. Monday the company reported a $3.41 billion loss in the third quarter and announced it would slash 1,300 jobs.

Most stunning about the announcement was that the first four employees to go were senior executives. Their departure is part of a plan to restructure the company into business units without a heavy corporate structure at the top, executives said.

It’s no wonder investors are betting on a sale of the company.

“Breaking up the corporate structure and pushing it into the business units sounds like they are preparing for a sale, not saving costs,” CreditSights analyst Ping Zhao told The Wall Street Journal. “Nortel is under pressure to sell itself in pieces.”

Rumors that either IBM or Microsoft would acquire Nortel have swirled for months. But now the question is whether Nortel’s business units will even be attractive enough.

For now Nortel CEO Mike Zafirovski denies acquisition rumors and said the restructuring will save money and make the company more nimble.

Ironically, most of the senior executives leaving were brought into Nortel to turn things around. Nortel never quite bounced back from the technology market bust in 2001.

Of the top executives leaving, CTO John Roese was the most surprising. Roese was recruited to help Nortel move into emerging technologies, ultimately changing the company’s position in the market. Roese posted his last blog on the Nortel site Monday.

“Intellectually, I feel that this is the right thing for Nortel because what the company needs more than anything else at this time is agility to maneuver in a complex market,” Roese wrote.

“Personally, I am comfortable with this direction even if I am not a part of the path forward. I was brought into Nortel to help correct many years of neglect on R&D and to get it into a position from a technology perspective where it could go forward. I believe that has been accomplished,” he continued.

Also leaving is chief marketing officer Lauren Flaherty, who was responsible for Nortel’s flashy David vs. Goliath campaign against Cisco. The campaign accused Cisco of placing an “energy tax” on enterprise users by not providing power savings. Flaherty spent 26 years at IBM, before coming to Nortel.

Global services president Dietmar Wendt and executive vice president of global sales Bill Nelson are also out. All of the executives will be gone by New Year.

In the meantime, Nortel is on a tear to convince customers that the company has enough cash on hand to continue servicing networks, and partners are still chugging along. It remains to be seen how much support partners will receive in coming months and what role they will play in Nortel’s turnaround — or ultimate sale.

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