Nortel: Gearing Up

 
 
By Darrell Dunn  |  Posted 2007-08-27
 
 
 

Toronto-based Nortel has been fighting a seesaw battle with profitability for years. Current CEO Mike Zafirovski was brought in late in 2005, the fourth chief executive of the company in a five-year span. After suffering a net loss of more than $2.6 billion in 2005, Nortel rebounded to profitability last year, only to have reported losses of $140 million in the first half of this year.

Nortel believes a major contributor to future financial stability will be expanding its position in the IP telephony market. In early August, Zafirovski said Nortel is discussing acquisitions with companies that could help expand its reach.

Widespread adoption of IP-based platforms is critical to the firm's financial performance, and the company made a big splash in the IP area a year ago when it announced an alliance with software giant Microsoft.

The alliance is aimed at breaking down traditional device- and network-centric silos of communications such as e-mail, instant messaging and multimedia conferencing through the use of Nortel hardware and Microsoft business software. Within its first year, the companies have reported about a half-million licenses from roughly 100 businesses utilizing a Nortel-Microsoft integrated platform.

IP telephony is at the center of Nortel's enterprise market effort. Its enterprise solutions business unit has recorded growth in each of the past four quarters, dating back to when Nortel joined forces with Microsoft to create the alliance, which the companies believe will transform business communications, reduce cost and complexity, and improve productivity.

Steve Slattery, president of enterprise networks at Nortel, says that the company's revenue from enterprise customers accounts for about a quarter of all Nortel revenue, and the unit had 23% year-over-year growth in the second quarter, ended June 30. More than 40% of second-quarter revenue came from its carrier networks division, which experienced a 16% decrease in revenue, while global services, which contributed about 20% of revenue, declined 9%.

"Nortel's alliance with Microsoft has been a tremendous success for us and our customers," Slattery says. "In addition, our alliance with Microsoft is opening doors to new customers for our entire enterprise portfolio, and is a key reason for the accelerated performance of our enterprise solutions business."

One of the early adopters was Windrush Frozen Foods, a U.K.-based wholesale food distributor. The company turned to Nortel and Microsoft late last year to create a platform that could allow it to operate with a lean staff and enable next-day delivery with its IP-enabled call-center operation, according to I.T. manager Robbie Roberts.

"If Nortel and Microsoft get this right, then the world is their oyster," Roberts says. "There is so much potential there. We can federate customers and share rich information between partners to work much closer together."

The move to the Nortel and Microsoft platform supports the primary mission of Indiana University to provide teaching and research through innovation and collaboration, says Dennis Cromwell, associate vice president for enterprise infrastructure for the school system, with eight campuses and more than 98,000 students and 18,000 employees.

Faculty members are able to rethink traditional office hours, with an ability to utilize instant messaging, e-mail and voice to allow students to interact with staff during times that are more convenient for both the student and teachers, including evenings and weekends.

"It makes sense to us that they would be able to bring together a unified communications framework," Cromwell says. "Changing technology landscapes are what we deal with every year, and that's why partners like Nortel and Microsoft make a lot of sense."

At A Glance

Nortel Networks
195 THE WEST MALL
TORONTO, ONTARIO, CANADA
M9C 5K1 (905) 863-7000
www.nortel.com

TICKER: NT (NYSE)

EMPLOYEES: 33,760

MIKE S. ZAFIROVSKI President & CEO

JOHN J. ROESE CTO

PRODUCTS: Networking equipment, including Communications Server, which work with Microsoft business applications.

CUSTOMERS: BASF, Great Canadian Gaming, Indiana University, NASA, T-Mobile, TNT, Westar Energy

FINANCIALS

2007FYTD* 2006FY 2005FY
Net Revenue $4.42B $11.42B $10.5B
Net income (loss) ($140.00M) ($28.00M) ($2.61B)
R&D spending $832.00M $1.94B $1.87B
*For first six months ended June 30, 2007. Fiscal year ends Dec. 31.

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