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Managing Editor

Don’t panic

May 07, 20042 mins

Nortel customers should not ditch the vendor during accounting scandal, analysts say

Nortel customers should stay put until the dust settles following last week’s ouster of CEO Frank Dunn.

Nortel customers should stay put until the dust settles following last week’s ouster of CEO Frank Dunn.

Nortel as a company is not going away, observers say. The company is merely cleaning up its management ranks while it, the Securities and Exchange Commission, and Canadian regulators continue investigating accounting practices that are forcing Nortel to restate financial results going back to 2000.

“The accounting woes do not threaten the viability of the company,” states Sanford C. Bernstein Analyst Paul Sagawa in a bulletin on the Nortel housecleaning. “Even with [a] lower gross margin level Nortel should remain profitable in 2004 and positioned to benefit from the ongoing – and in our view sustainable – improvement in the overall infrastructure spending environment.”

Nortel has been involved in an ongoing independent review of the circumstances leading to the reissuing of its financial statements for 2000, 2001 and 2002, and for the first and second quarters of 2003, the company said in a statement. As a result of those investigations, Dunn was “terminated for cause,” Nortel said.

Former Chief Financial Officer Douglas Beatty and former controller Michael Gollogly – both of whom were suspended by the company in March – have also been terminated for cause. Nortel also delayed the release of its financial results for the first quarter of the year.

“Everybody wants to see what the dirty laundry is before they do anything,” says Frank Dzubeck, president of consultancy Communications Network Architects. “I don’t see any concerns about bankruptcy or change of direction. Nortel’s working on new routers and stuff like that.”

Dunn has been replaced by William Owens, a Nortel director. Interim CFO William Kerr and controller MaryAnne Pahapill have replaced Beatty and Gollogly, respectively, on a permanent basis.

As part of its restated results, Nortel said it expects a 50% reduction in 2003 net earnings, though losses in previous years will be revised down.

Managing Editor

Jim Duffy has been covering technology for over 28 years, 23 at Network World. He covers enterprise networking infrastructure, including routers and switches. He also writes The Cisco Connection blog and can be reached on Twitter @Jim_Duffy and at

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