Nortel's rerun: Another purge, another restructuring
Nortel on Monday purged its executive ranks--Chief Marketing Officer Lauren Flaherty, Chief Technology Officer John Roese, Global Services President Dietmar Wendt and Executive Vice President Global Sales Bill Nelson are all leaving Jan. 1--and announced yet another restructuring amid a weak earnings.
Continuity and Nortel are two words that just don't quite go together. The latest: Nortel is laying off 1,300 workers and restructuring during an economic downturn (statement, Techmeme). When Cisco delivers bad news about its outlook and economy you get the genuine feeling that there's a steady hand on the wheel and a plan. Cisco's competition--Alcatel Lucent and Nortel--seem to be in a perpetual state of turmoil.
To wit: Nortel announced major restructuring plans in 2001, 2004, 2006 and 2007.
Simply put, it has been a decade (see 10-year chart below) of debacles for Nortel.
Some recent history from Nortel's annual report:
On June 27, 2006, we announced the implementation of changes to our pension plans to control costs and align with industry — benchmarked companies, initiatives to improve our Operations organization to speed customer responsiveness, improve processes and reduce costs, and organizational simplification through the elimination of approximately 700 positions. In February 2007, we outlined plans for a further net reduction of approximately 2,900 positions, with approximately 1,000 additional positions affected by movement to lower cost locations, and reductions in our real estate portfolio. During 2007, approximately 150 additional positions were identified and incorporated into the plan, and 300 removed from the plan due to a change in strategy increasing the total number of workforce reductions to approximately 2,750. On February 27, 2008, we announced a further net reduction of our global workforce of approximately 2,100 positions, with an additional 1,000 positions to be moved from higher cost to lower cost locations, and a further reduction of our global real estate portfolio.
Got all of that? Now we have another restructuring circa 2008.
The latest Nortel's problems are clearly pinned to the economy, but the company had its shares of issues when times were good. Ditto for Alcatel Lucent.
Nortel's third quarter revenue declined 14 percent from a year ago to $2.32 billion. The company lost $3.4 billion, or $6.85 a share. Adjusting for writedowns and other items, Nortel reported earnings of 30 cents in share. Nortel's results were in line with its profit warning. Nortel couldn't give an outlook for 2009, but did say 2008 revenue would fall by about 4 percent.
The company's plan now is to preserve cash and cut costs--it plans to save $400 million in 2009, freeze salaries and hiring.
As for this reorg, Nortel will decentralize corporate functions and focus on vertical units aimed at enterprise customers and service providers.
Well, it's been an interesting 28 months here at Nortel for me. As you may have heard, Nortel is taking steps to assure it can better compete in the market and better serve its customers during the challenging economic and market dynamics we are all experiencing. As part of that effort the company has announced today that it is moving to a business unit structure in which all functions and resources (other than a few corporate activities) will be decentralized and integrated into full business units. With that change, the central CTO and R&D functions will be divided and moved into each BU and, as such, my role is no longer needed.
Intellectually, I feel that this is the right thing for Nortel because what the company needs more than anything else at this time is agility to maneuver in a complex market.
The latest restructuring may be the ticket, but frankly these deck chairs on the good ship Nortel are starting to all look alike.