Five things Nortel must do to complete comeback

Its financial restatements concluded and its new management team intact, Nortel still faces some hurdles in completing the turnaround initiated after an accounting scandal three years ago.

Customers, partners and analysts all agree that Nortel can improve – and is working to improve – business relations with users and resellers. The company also has to further rationalize its product line, which observers contend is still confusing and redundant after acquisitions that took place almost 10 years ago.

In addition to products, Nortel must also rationalize its lines of business in order to become a truly formidable No. 2 supplier to Cisco in the enterprise. The company must also partner, purchase or develop its way back into the IP core and edge router space, watchers say, and figure out a way to scale to compete with the likes of Alcatel-Lucent, Nokia-Siemens and other combined competitors formed from mergers and acquisitions.

“They’re a relatively small company in an industry of giants now,” says Zeus Kerravala, an analyst at The Yankee Group. “You really wonder how they can compete long term with some of these larger companies.”

Nortel says it continues to build momentum after installing a new management team over the past year and clarifying the markets it intends to pursue with vigor – Enterprise, IP TV, WiMAX, IP Multimedia Subsystem, Metro Ethernet and professional services. Company executives acknowledge though, that the turnaround is still in its initial stages.

“I think there’s very much still things to accomplish,” says George Riedel, Nortel’s chief strategy officer. “I think we’ve built a lot of momentum and a good foundation, but we’re not confused about this being still early in the journey to complete the turnaround.”

Riedel says the top five company priorities in furthering its comeback effort are:

• Reducing costs or expanding margin by $1.5 billion over the next several years;

• Transforming the enterprise business;

• Driving next generation mobility around 4G wireless technologies;

• Building a professional services business;

• Retooling the company’s brand awareness and go-to-market strategy

“Where we do get a shot we do quite well, but the phrase around here is the ‘at-bats,’” Riedel says. “Are we missing opportunities because we just don’t get a shot? Either customers aren’t aware that we have an offering, or we don’t have distribution reach or, whatever the combination of things.”

Customers agree.

“I don’t think that the value of their solutions is in question; the question is, are they using the right marketing and sales strategies to get their products to market?” says Victor Bohnert, executive director of the International Nortel Networks Users Association (INNUA). “Cisco has two very good things going for them: market visibility and a very aggressive sales strategy. Nortel is going to have to develop those two key pieces.”