As most of the world knows, Nortel filed by bankruptcy protection on January 13th. In the majority of corporate bankruptcies, the company files under chapter 11 which allows them to discharge most of their liabilities and emerge as an existing entity.
Nortel does not look to be going down this path but rather looks to be liquidating its assets, putting up different parts of the company for sale. They’ve already sold their layer 4-7 data business to Radware. Now up on the auction block is their Enterprise voice business consisting of the widely-deployed Norstar, BCM and Meridian One systems. It is understood that Avaya, Siemens, and Aspect are all interested in the business.
There is discussion that Nortel will emerge in some form or another, keeping a core technology such as metropolitan Ethernet. To this writer, it is just as likely that they disappear all together. And if they do emerge, they’ll be a small bit player, paling in comparison to their previous clout and position in the marketplace.
Regardless of what happens to the Enterprise business, in the short term the more things change the more they stay the same. Business goes on as usual from a day-to-day perspective. The sales and support group are still intact, and equipment and software readily available. Even after the sale it will be at least a couple of years before the dissolution of Nortel will substantially impact end user companies. The acquiring company will most likely provide transition paths to move off the Nortel systems to their platforms. In the cases where Nortel products are superior to their own, they’ll likely re-name them and continue to develop and market them.
Nortel was once a high and mighty flyer. They could do no wrong and were dominant in many of their product lines. However, a horribly overpriced acquisition of Bay Networks marked a turning point in the late 90’s. They couldn’t decide if they were a voice company or a data company. Whether they wanted to concentrate on what they did best or be all things to all people.
When the dotcom implosion occurred, Nortel never recovered. Executive management was shuffled, books were cooked and no meaningful corporate direction was pursued. As one ex-employee said about them, “Nortel – The NO in InNOvation. While their competitors trimmed unprofitable businesses and moved decisively into new technologies such as VOIP, Nortel lumbered along, a beast of a former time. Nobody ever said that capitalism is kind.
I’d like to know your opinion.
Randy Kremlacek
Randy is the President of Teledynamic Communications. The company specializes in premise-based and hosted SIP PBX’s, pbx monitoring and Unified Communications.
By Fabrice on Apr 24, 2009 | Reply
Don’t confuse timing with cause and effect.
The “dotcom” implosion didn’t so much affect Nortel as the optical telecom implosion that was also occurring; related but independent to a large degree. The effect on optical telecom was the more severe; networking faired reasonably well, witness Cisco.
Nortel’s view that it could do many things was largely fed by its success – and leadership – in optical telecom. In that era I worked for a supplier of leading-edge optics to the industry, including Nortel, and it was widely acknowledged that Nortel was cleaning its competitors’ clocks.
Nor were inflated purchase prices exclusive to Nortel. The aforementioned company I worked for purchased a competitor with a 50 sq. meter manufacturing plant and about 50 employees for $2.2B. The company’s stock then ratio’d as badly as Nortel’s. At $9.8B, Bay seems a comparitive bargain.
All those in telecom have been brought down since those heady days – and the preceeding nine decades as regulated monopolies – but Nortel never recognized it no longer ruled the world.
By zz on Apr 24, 2009 | Reply
The acquisition of Bay Networks itself was not a poor decision for Northern Telecom. It was clear at the time that Voice would be converged onto data networks. After Cisco, Bay Networks was the next largest vendor in Enterprise data networking space and was looking to expand into the ISP market.
Nortel failed due to poor decisions by upper management that didnt truly understand the business and didnt nurture and focus on the appropriate product lines. The bureaucracy and product silos within Nortel led to low quality products that were not able to grow market share.
By Roy Clason on Apr 24, 2009 | Reply
While the purchase of Bay was not doubt a very costly mistake, the main reasion Nortel fell from grace was the mis management of their corporate manufacturing policies. The man left in charge while Roth departed was ill equipped to deal with an exploding “demand” for OC-192 Optical devices and totally ignored those closest to the customers regarding real market demand and network deployments. Many of the major accounts vice presidents were unable to convince senior management that the growth cure was really artificial.
By William Huggy on Jul 23, 2009 | Reply
I would say Roth had a good vision to prepare the company for the next wave of opportunities as a result of voice and IP convergence; poor execution was the reason for Nortel’s downfall:
- Lack of Board and Exec management oversight to ensure best decisions are made re the buying spree of various companies (there was one exec, who shall remain nameless, that just had too much power!). Yes while Bay was the largest, there were many others that Nortel significantly overpaid for based on valuation on futures.
- The failure by management to recognize that the dot.com hype could fall flat, leaving the company with significantly devalued assets and huge debt (I believe total spend buying companies were $25B+).
- Fairlure to properly assess the readiness of the products of the companies they bought….so they ended up with a lot of paperware and IP that were not going to generate revenue for sometime….lousy ROI!
- They had too many companies to integrate at one time, again could not realize the solution value of all the pieces.
All of the above and short-term greed, caused the company to go off the rails! The most sad part, recovery was possible but the Board continued to show their ineptness by not hiring the best subsequent CEO’s to get the job done!