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Sun 1 Oct 2006 04:00 AM

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BIG plans at Nortel

Suffering from declining profits, allegations of financial impropriety and a declining market share, Nortel Networks needs a boost. Nortel CEO Mike Zafirovski believes that the opportunity exists to make Nortel great again. Tawanda Chihota reports from London.

For the past few years now Canada’s Nortel Networks has been making the headlines for all the wrong reasons. Restatement of financials, allegations of financial impropriety, and speculation that it appears a prime candidate for a takeover have plagued the telecoms equipment supplier for years. Given the pace of consolidation in the telecoms supplier space and imperative to build strong, long-term relationships with operators and corporates, Nortel’s perceived instability has been a real threat to the company’s continued existence.

Mike Zafirovski, Nortel’s president and CEO, was appointed to the position in November last having moved from his position as president and chief operating officer of Motorola. He has taken it upon himself to reassure the market that Nortel is turning the corner and is moving back to a period of stability and growth.

“The thing I feel best about is the management team we have put together,” said Zafirovski, at a specially convened press briefing in London last month. “Issues arising from litigation and financial restatements are largely behind us,” he added.

We used to be a great company; we are not right now, but we are looking to return there.

Zafirovski has always held a burning ambition to head a multinational corporation and mould it into something that reflected his own values of efficiency, profitability and focus. Having lost the race to become CEO of Motorola to Ed Zander, Zafirovski’s arrival at Nortel appears tinged with even more determination to turn around a once impressive organisation, and make it resemble its former self.

Nine months into the job and Zafirovski and his senior management team are implementing a strategy they describe as BIG – ‘B’ standing for business processes, ‘I’ standing for integrity renewal and ‘G’ standing for growth. “We are instituting a six-point plan to recreate a great company. We used to be there, we are not there right now, but we are looking to return there,” Zafirovski acknowledged.

Three of the six action points are related to growth, and like most other equipment suppliers, Nortel is looking to generate significantly more revenues from services and applications as opposed to just hardware.

Things do appear to be improving, aided by the injection of new blood into the senior management team. Orders for the first half of the year were up 22% year on year, with revenues up five points. The company’s primary plan to regenerate itself is to focus on the business areas in which it enjoys strong positions and jettison the other areas that are a drain on cash: one such example is the recent sale of the firm’s 3G UMTS business to Alcatel.

“We are focusing on next generation mobility and convergence,” Zafirovski suggested, emphasising that within this, the delivery of enterprise solutions plays a significant role. Nortel sees enormous benefit in targeting enterprises as well as carriers. In July, Nortel displayed just how seriously it was targeting the enterprise market when it announced it had entered into a strategic alliance with Microsoft based on a shared vision for unified communications. By engaging the companies at the technology, marketing and business levels, the alliance is set to allow both companies to drive new growth opportunities and has the potential to ultimately transform businesses communications, reducing costs and complexity and improving productivity for customers.

VoIP is a US$65 billion business, growing 6-10% annually. I believe we can target half of that.

The aim of the alliance is to combine Nortel’s world-class network quality and reliability with Microsoft software’s ease of use, thereby accelerating the availability of unified communications — an industry concept that uses advanced technologies to break down device- and network-centric silos of communication (such as e-mail, telephony and multimedia conferencing) and makes it easy and efficient for workers to reach colleagues, partners and customers with the devices and applications they use most.

“We believe the tie-up with Microsoft will bring over US$1 billion of revenues to Nortel,” estimated Zafirovski. “VoIP is a US$65 billion business and growing at 6-10% annually. I believe we can target half of that,” he added.

What is refreshing about Zafirovski’s style of management is that he appears willing to face facts and accept the work that still needs to be done going forward. He describes Nortel as a developing story, which is not yet complete and forecasts that it will take at least another three to five years to put things right.

“We have been pretty quiet for the last eight or nine months on purpose as we were building momentum,” Zafirovski stated. Darryl Edwards, Nortel’s president of Europe, Middle East and Africa has been in the job for about two months and is excited about the prospects the region offers Nortel for further growth. “I am excited at this point by the momentum generated in the first 30 days in my job,” Edwards said last month. “50% plus of Nortel’s revenues in Europe come from next generation technology, and 50% plus of Nortel’s global revenues are generated outside of North America.”

Zafirovski says he loves what is happening in the EMEA region for Nortel, having a business that grew over the last six consecutive years despite the trials and tribulations. Seven thousand of Nortel’s 30,000 staff compliment operate out of 30 countries across the region, and Nortel executives feel confident to expect ever-greater results from the region, which accounts for 25% of global revenues.

John Roese, Nortel’s chief technology officer, sees the Middle East as an area with major opportunities for the vendor: “There are interesting opportunities that exit in emerging markets, which permit operators to develop new networks and not be encumbered by legacy. In markets like those found in the Middle East, there is a greater willingness to invest in 4G earlier, and that involves the early adoption of WiMAX.”

“In the Middle East, whole new cities are being built in the desert,” added Edwards, himself a veteran of the region. “We are accelerating our investment in the next two years in the region, both in the enterprise as well as corporates. We intend to see strong revenue growth.”

Despite its difficult recent past, Nortel intends to remain very much an independent company, and while it can clearly see the wave of consolidation occurring around it, is determined to continue charting its own future.

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