Wednesday, May 04, 2005

Some Final Thoughts on Nortel

Some Final Thoughts on Nortel

by Mark Evans on May 4, 2005 07:52AM (EDT)
Now that people have digested Nortel's 2004 fourth-quarter and annual results, we can focus on the real story: the company's growing inability to be competitive. Over the past 16 months, Nortel has obviously been distracted by accounting and financial restatement issues. In the meantime, rivals such as Cisco and Alcatel have made strategic acquisitions to enhance their technology portfolios, while low-cost suppliers such as Huawei and ZTE have suddenly emerged as viable threats (check out Huawei's inclusion in BT's US$19-billion next-generation network contract.) It's definitely not a pretty picture, and one that analysts and media such as BusinessWeek are starting to pick up on.
So what does Nortel do? While it has to reduce costs, it really needs to look at acquiring cutting-edge technology. The targets could include companies such as Redback, Enterasys, Tellabs, Calix, Foundry and Sycamore Networks. The big issue is Nortel doesn't seem to have the horses to compete in markets such as IP-networks. The BT contract exposed the company's shortcomings. It was troubling CEO Bill Owens conceded Nortel was unable to compete for BT business. I look at Nortel's competitive stance these days, and shake my head when you look back to January 2004 when Nortel posted blow-out 2003 fourth-quarter results and then won a huge VOIP contract from Verizon. CEO Frank Dunn was looking like a hero. Then, it all fell apart.
It is hard not to get the feeling Nortel is poised to become a second-tier supplier - squeezed from the top by stronger rivals such as Cisco, Alcatel and Juniper, and from the bottom by scrappy rivals such as Huawei. If Bill Owens thought he had a tough job in 2004, 2005 could prove to be even more challenging and difficult.
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