Nortel CEO has high hopes for 2005 despite challenges

One year after taking the helm at the beleaguered telecom giant, CEO Bill Owens has steered Nortel through perhaps the most challenging period in its 110-year history.

Rocked by an accounting scandal that launched audits and forced the restatement of years of earnings, Nortel is now emerging from the financial quagmire with a renewed enterprise strategy - including an aggressive campaign to attract federal government business - underscored by the hiring of two former Cisco executives to top level positions.

At the same time, Nortel has lost momentum in both the enterprise and its traditional carrier businesses. In its latest financial disclosure, Nortel's profits plummeted 75% in the fourth quarter of 2004 and the company experienced market share losses and declining sales in LAN switching, carrier IP Telephony, wireless and optical.

Nortel declined requests to interview Owens on his first anniversary as CEO. His accomplishments include navigating Nortel through its audits, investigations and restatements; reorganizing the company and reinvigorating Enterprise operations; naming ex-Cisco executives Gary Daichendt and Gary Kunis as president and COO, and CTO, respectively; acquiring federal systems integrator PEC Solutions in order to better compete on U.S. government contracts; and appointing a chief compliance and ethics officer to administer companywide integrity.

To continue reading, register here to become an Insider. You'll get free access to premium content from CIO, Computerworld, CSO, InfoWorld, and Network World. See more Insider content or sign in.

One year after taking the helm at the beleaguered telecom giant, CEO Bill Owens has steered Nortel through perhaps the most challenging period in its 110-year history.

Rocked by an accounting scandal that launched audits and forced the restatement of years of earnings, Nortel is now emerging from the financial quagmire with a renewed enterprise strategy - including an aggressive campaign to attract federal government business - underscored by the hiring of two former Cisco executives to top level positions.

At the same time, Nortel has lost momentum in both the enterprise and its traditional carrier businesses. In its latest financial disclosure, Nortel's profits plummeted 75% in the fourth quarter of 2004 and the company experienced market share losses and declining sales in LAN switching, carrier IP Telephony, wireless and optical.

Nortel declined requests to interview Owens on his first anniversary as CEO. His accomplishments include navigating Nortel through its audits, investigations and restatements; reorganizing the company and reinvigorating Enterprise operations; naming ex-Cisco executives Gary Daichendt and Gary Kunis as president and COO, and CTO, respectively; acquiring federal systems integrator PEC Solutions in order to better compete on U.S. government contracts; and appointing a chief compliance and ethics officer to administer companywide integrity.

Among his challenges…

* Nortel is still a distant No. 2 to Cisco in Ethernet LAN switching. The company fell further behind in the market over the past year, losing a full percentage point of market share in 2004, to 4.7% of the $13.1 billion worldwide market for Layers 2, 3, and 4-7 switching, according to Dell'Oro Group. In Gigabit Ethernet switching, Nortel lost almost two percentage points, from 7.4% to 5.6% of the $6 billion worldwide market, according to Dell'Oro.

Nortel's own Enterprise revenue, which accounts for 24% of the company's annual sales and is its second largest business unit, dropped 31% in the fourth quarter to $651 million, and 9% for the all of 2004 to $2.4 billion.

* In wireless infrastructure, which is Nortel's biggest business unit and accounts for virtually half of its $9.8 billion 2004 revenue, Nortel lost more than two percentage points in CDMA - from 21.9% to 19.8% of the $8.8 billion worldwide market in 2004, according to Dell'Oro. Nortel also lost almost two percentage points in the $4.8 market for WCDMA last year, from 4.5% to 2.8%.

Wireless revenue dropped 11% between Nortel's third and fourth quarters.

* Sales of wireline equipment - which include frame relay and ATM switches - declined 19% in the quarter and 14% for the year; and optical fell 28% in the quarter and 23% for the year. Nortel has also been late shipping some key products. The company's MPE 9000 multiservice edge router, for example, has been pushed out to mid-2005 from late 2004 and Owens cited this delay as a factor in Nortel missing out on becoming one of BT's eight strategic suppliers for its $19 billion 21st Century Network project.