Nortel Networks: 5 Big, Unanswered Questions

Here’s what I’m curious about:

1. Nortel (NT) is planning on cutting 1,300 positions but despite announcing plans on Sept. 17 that it was restructuring, no one seems to have lost their job yet other than four senior executives: John Roese, Lauren Flaherty, Dietmar Wendt and Bill Nelson.

It seems like a bizarre way to conduct business. Imagine if you’re a hard-working Nortel employee, and you have no idea whether you’re going to be among the 25% who are going to lose their job over the next two months or one of the 75% slated to get turfed in early-2009.

So, what would you do? Either you’re looking for another job outside Nortel, or you’re doing some serious brown-nosing within the company to keep your job or find another position internally. Either way, lots of Nortel employees are probably doing something other than being focused on work.

And if you’ve got a big chunk of your employees worried more about being employed than working, what do you think the fourth-quarter numbers are going to look like? My prediction is pretty bad.

2. Just wondering if Nortel is going to replace its chief technology officer (Roese), chief marketing officer (Flaherty), global services president (Wendt) or executive vice-president of global sales (Nelson)?

If not, then it’s obvious Nortel is being chopped into three distinct entities with their own management teams - enterprise, carrier and the metro Ethernet networks business, which is already operating as a quasi-standalone entity.

It begs the question whether Nortel is being positioned to be sold in chunks somewhere down the road. Check out Red Herring for more on the breakup scenario.

3. What’s the board doing these days? If they, in theory, approved the dumping of four senior executives hired as part of Mike Zafirovski’s senior management overhaul, then what does that say about their confidence in Mike Z.?

Speaking of the four senior executives, why let them go now? Three of them - Roese, Flaherty and Wendt - were hired just two years ago while Nelson joined only 10 months ago. If they weren’t doing the job, shouldn’t Joel Hackney have been axed as well given that Nortel’s still far from being a major player in the enterprise market.

4. What’s Zafirovski’s future? There’s no doubt he’s a good operations, finance and sales guy but what’s been his strategic vision?

5. Finally, how long before Nortel files for bankruptcy protection?

The company is burning through cash at an alarming rate, the chance of it selling any of its assets for a major amount of cash are dwindling by the day, and senior management seems unwilling to perform radical surgery to get the patient on the road to health.

Comments

[Red Green:]

Answers to your questions:
1. I would be looking for another job and all the Nortel people are doing the same.
2. No, they are not going to replace them. Probably combine several positions into one and hire someone cheap who will then fail.
3. The board is doing lunch and pontificating about nothing important.
4. Mike Z's future is bleak. What has he done to merit a future?
5. Soon. Neither Mike Z, the board or anyone else presently there knows what to do. So it will happen by default.

2008 Nov 14 11:49 AM

[Serraphin:]

They need to get the government to allow them to address their pension problem, Eliminate it, reduce it, whatever. The fact remains that if Nortel folds not a single pension will be paid. Second they should sell their Defense related assets, Nortel Government Solutions and focus on their market which is presumably now Unified Communications. Mike Z and at least half the board should be replaced. Everyone has a hand out for a bailout, why not Nortel. Give Canada a share in our stock for some bail money or perhaps let the employees take ownership. Turn Nortel into an employee owned company. Let us clean house and turn this ship around. Move over board, we'll handle your fiduciary duties...


On Nov 14 11:49 AM Red Green wrote:

> Answers to your questions:
> 1. I would be looking for another job and all the Nortel people are
> doing the same.
> 2. No, they are not going to replace them. Probably combine several
> positions into one and hire someone cheap who will then fail. <br/>3.
> The board is doing lunch and pontificating about nothing important.
>
> 4. Mike Z's future is bleak. What has he done to merit a future?
>
> 5. Soon. Neither Mike Z, the board or anyone else presently there
> knows what to do. So it will happen by default.

2008 Nov 14 01:48 PM

[law1985:]

Regarding point#5, the company is much too solvent and liquid to qualify for Chapter 11 protection in the US or any kind of restructuring under the Companies Creditor Arrangement Act (CCAA) in Canada.

Depending on 2009 sales, the earliest timing would be late 2010. There needs to be a sense of immediacy regarding financing shortfalls to justify bankruptcy. The bankruptcy mechanisms are not meant to be abused by viable solvent companies simply seeking to reduce their debt load.

As matter of fact, Nortel could probably actively buy back some of its outstanding debt and retire much of it at a cost of less than 80 cents on the dollar. The resulting tax free gain and savings in interest would provide more bang than a share buyback.

Your tone sounds desperate. Why not focus on CanWest, Air Canada or Teck Cominco? At least those companies are nearer to insolvency than Nortel.

2008 Nov 14 05:24 PM

[claytondennis:]

Nortel cuts 1300 positions -
Mark raises some good questions regarding cuts at Nortel and Mike Z's ability to act strategically. History has shown - far too many times across far too many companies - that across the board layoffs do not work and only compound issues of employee productivity, loyalty and overall efficiency. More importantly, it is the real fix needed in the long term. The current environment of Nortel, like others before them, only serves to paralyze their work force. If Mike Z was serious about productivity and profit for the long haul he would due well to be more surgical and strategic in his approach. i.e., what core company functions and markets need attention, what restructuring measures are required to help the company operate more efficiently, where can costs be reduced other than through arbitrary layoffs, how best to identify poor (employee) performers and then reinvest in a better skill base, and finally get the Board to buy in to the 3-5 year quality and productivity improvement plan. Is a fundamental restructuring of Nortel required? Certainly appears that way. Has this indeed been done? Probably not. So, in an economic and business climate that requires agility, Nortel will no doubt continue to spiral downward as a marginal company with great potential not realized. As Mark points out, Mike Z may be a good sales and finance guy but those are not the essential core competencies for CEO's in today's business environment.

2008 Nov 29 09:09 AM

[Directoy:]

What I think about the fourth quarter, Great Question ?
I Think the numbers will get Better!

2008 Dec 31 03:07 PM