Nortel: Why Cisco should be worried

It's been a little more than a year since Mike Zafirovski left Motorola to take the reins at Nortel. In that time he has remade top management, raised the profile of Nortel's enterprise business, focused product development, slashed costs, instituted quality and ethics principles, and established sales and profitability targets. Zafirovski shared his thoughts with Network World Managing Editor Jim Duffy on how things have gone and what's next.

Cisco says it is more focused on emerging technologies and market transitions than its rivals are. Why should Cisco worry about Nortel?

Cisco is a great company; I have lots of respect for them. Most people would say they are a very powerful sales and marketing machine, not necessarily an innovator. [But Nortel] is a very passionate company that really wants to make a difference, to be a great alternative. A company that has led in most communications, including the evolutions on IP. We are very committed to lead again and we believe we are bringing our innovation back to a core competency [with] smarter commercialization of that technology. And most important, a company that's going to make business simple and more flexible than any other company out there.

Your plans to reduce R&D spending to 15% from 17% of revenue means your total annual R&D spend will equal that of Cisco just in the service provider market. How do you compete when you're being outspent by that much?

We are very committed to being really relevant in all of the places where we participate. We are a strong No. 2 in [Code Division Multiple Access], for example. No. 2 in [enterprise] VoIP, No. 2 in Ethernet switching; No. 1 in carrier VoIP [and] in Metro Ethernet; No. 1 in packet switching and No. 2 in optical. One of the reasons we decided to exit [Universal Mobile Telecommunications System] is just for that reason: four or five point market share, maybe seven. We were so insignificant. The challenge for us is spending well. We are not underspending relative to revenues.