If there were any doubts about Nortel’s commitment to the enterprise, they should be vanquished now.
If there were any doubts about Nortel’s commitment to the enterprise, they should be vanquished now.
Amidst the layoffs, executive firings and operational consolidations announced by Nortel last week was a strategic emphasis on its enterprise business as the company looks to regain financial footing after an accounting scandal. Enterprise is one of two Nortel business units – Carrier being the other – left standing after the company unveiled its reorganization plan.
Enterprise products accounted for more than 20% of the company’s revenue each of the past two quarters, outpacing two of what had been four company units before the reorganization. Nortel also is gunning for the defense and government markets, which represent tens of billions of dollars annually in the U.S. alone, says Nortel CEO Bill Owens.
Owens also says enterprise operations were spared the brunt of the 3,500 layoffs announced last week, which represents 10% of Nortel’s workforce.
The renewed emphasis on the corporate world comes none too late to some. Barring a renewed commitment, investment firm UBS Warburg suggested recently that Nortel consider paring down or even selling off its enterprise and optical units to reach profitability targets. Analyst Nikos Theodosopoulos says enterprise and optical were a “drag” on Nortel’s profitability
Also, Nortel is a distant No. 2 to Cisco in enterprise LAN switching with a 5.3% share of the $3.3 billion market in the second quarter, according to Synergy Research. Cisco’s share is 69%, according to Synergy.
Nortel’s LAN switching revenue dropped 10% between the first and second quarters, Synergy says. And growth in the company’s enterprise business has been weaker than Nortel’s peers for two years, according to UBS Warburg.
Owens says Nortel did consider “all opportunities and alternatives” for its enterprise business, including spinning it off or selling it. But the emerging synergies between enterprise and carrier, and the role the unit plays as the “seedcorn” for Nortel’s defense and government activity, convinced the company to retain it.
“I don’t think it has been in the natural DNA of Nortel to be strongly in the enterprise business,” Owens admits. “It hasn’t had the focus and the direction that is natural for Nortel to have with its biggest customers, the major telcos of the world. But as major telcos have become more interested in enterprise and bundled IP solutions, so have we.”
In establishing the Enterprise and Carrier business units, Nortel consolidated four units into two. The previous ones were Wireline, Wireless, Optical and Enterprise.
Owens said the streamlining reflects the realities of the market – “We’re all heading toward a converged solution.” The reorganization also will result in a more customer-attentive structure dedicated to integrating security into the converged product set, Owens says.
Nortel estimates the reorganization will cost $300 million to $400 million but will save the company $450 million to $500 million annually, including reductions in research and development spending and investments in long-haul optical systems.
