Nortel - follower of fashion or astute survivor?

Can it really remain Cisco's public enemy number one?

Can it really remain Cisco's public enemy number one?

The people behind the IT industry may be techie nerds who despise fashion, but make no mistake - this is an industry governed by vogue.

Take the stock market. Company A announces poor results - Wall Street expects company A to reduce headcount. Nortel issues its Q3 profits warning - Nortel cuts 15,000 jobs.

Take the world economy. CEO A says a recession is imminent - investors start selling. Cisco chief John Chambers says we're heading for a recession - and guess what - Nasdaq embarks on its steepest dive ever.

And it's partly because of John Chambers' now infamous speech earlier this year that we ended up in this situation. But does that mean we're saying that Nortel is jumping to Cisco's tune? Well, to put it bluntly, yes.

Cisco, and more importantly, Chambers, is one of just four bellwethers of the industry, along with Intel's Barrett, Microsoft's Gates and IBM's Gerstner.

Whatever tune they play, the rest dance to. And Nortel is no different. The secret though is to dance to their tune whilst being clever enough not to let them put you out of business.

The question is - is Nortel that clever? It certainly is making all the right moves. Whether the current 'recession' is real or not has become academic - we've talked ourselves into one now and it's too late to get out.

This week Nortel appointed former CFO Frank Dunn as CEO, and if anyone is going to steer the firm through the choppy waters of skinny revenues and even skinnier profits, it's him.

But counting beans isn't the end of the story. Nortel needs to survive the slump, but it also needs to be in top shape when it comes out the other side.

The only way to do that is to hold onto its most creative engineers and developers, and make sure its technological development keeps up with and even exceeds Cisco's. Only with their help can it really keep Mr Chambers off the Presidential golf course and in the boardroom.

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