Telecom Equipment Makers

The Official and Sad End of Nortel

Pretty soon, Nortel will finally disappear after two and a half years of bankruptcy protection.

The final chapter will be written when an auction of 6,000 patents will be completed – a process that has apparently attracted more than 100 interested parties, including Google and Research in Motion. The auction is expected to generate $1.5-billion.

It’s sad ending to what was a telecom powerhouse and Canada’s leading high-tech company. It was only a decade ago that then-CEO John Roth was talking about Nortel reaching $40-billion in sales.

There are a myriad of reasons why Nortel went from the penthouse to the outhouse – a lengthy list that includes bad acquisitions, terrible strategic decisions, CEOs that never should have been CEOs, financial scandals and intense competition.

But perhaps the hardest pill to swallow is how Nortel, specifically its senior management and the board, surrendered rather than fight on. After filing for bankruptcy protection, Nortel could have restructured to emerge as a smaller, more focused, more competitive and less debt-laden entity.

Instead, Nortel CEO Mike Zafirovski and the board, no doubt pressured by debt holders, decided to launch a scorched earth strategy by selling everything. While these sales have generated billions of dollars for creditors, Nortel will soon be no more.

The sale of Nortel’s patents is disheartening because there is so much great technology within the portfolio, particularly the company’s long-term evolution technology that will increase the speed and capacity of mobile networks. A former Nortel director, Sorin Cohn, estimates the buyers of Nortel’s patents could make as much as $15-billion from creating new products.

Astounding and saddening.

In an ideal world, Nortel would still be alive and well. Maybe it would only be a company with 5,000 employees operating in a few markets such as wireless. But that’s a better scenario that completely disappearing from the telecom landscape.

RIP, Nortel.

Six Reasons Why RIM is No Nortel

Rim logoIn the wake of Research in Motion’s disappointing financial outlook recently, the anxiousness about the company’s future has been cranked up. This included a highly-speculative story in the Toronto Star about how RIM could become a takeover target. Even more alarming are growing comparisons to Nortel, which was Canada’s flagship high-tech company until it disappeared after filing for bankruptcy protection.

Having covered Nortel for five years as a technology journalist and writing a blog devoted to Nortel, the comparisons between Nortel and RIM are the work of people with nothing better to do than declare the end is nigh. Call it the “Chicken Little Syndrome”, or a typically Canadian reaction of trying to tear down our success stories.

While RIM’s challenges and problems should not be sugar-coated or dismissed as a strategic bump in the road, the situation is far from doom and gloom. RIM has some difficult decisions to make and desperately needs to find a way to reinvigorate its Blackberry and PlayBook sales but it’s a long way from becoming the next Nortel. Here’s a few reasons why the two companies can’t be thrown into the same basket.

1. Stronger Senior Management: Maybe RIM’s co-CEOs, Jim Balsillie and Mike Lazaridis have ruffled some feathers because of their arrogance, and there is no doubt they have failed to strategically execute but they have built RIM into a telecom powerhouse over the past decade. In comparison, Nortel struggled with a string of weak CEOs that included John Roth, Frank “The Bean Counter” Dunn, Bill “The Admiral” Owens and, finally, Mike “Mike Z” Zafirovski, who bumbled and stumbled their way through mistake after mistake until Nortel eventually capitulated.

2. RIM is highly profitable with lots of cash, which should provide it with a healthy financial cushion to figure out how to ride out the storm. In comparison, Nortel was burdened with billions of dollars in debt after missing out on windows to raise equity before its shares became a penny stock.

3. While Laziridis and Balsille were slapped on the wrist by the OSC after being accused stock option backdating, Nortel was killed by class-action lawsuits that cost it billions of dollars and distracted senior management at a time when tough decisions need to be made.

4. Nortel made a series of multi-billion dollar acquisitions that were spectacular failures. Many of them were completely written off, while others were dumped for pennies on the dollar. Again, Nortel’s focus was all over the place. In comparison, RIM’s acquisitions have been small and far more strategic. This includes the purchase of QNX, which will be the core of RIM’s next-generation operating system.

5. Lazaridis and Balsillie control a big chunk of RIM through share ownership. At the end of the day, RIM won’t be sold without their agreement. In comparison, Nortel was controlled by institutional holding stock and debt holders.

6. With the right strategic execution, significant improvements in the half-baked Playbook and a big dose of luck, RIM could keep its status as a tier-one smartphone maker. In a blink of an eye, Nortel went from a tier-one telecom equipment supplier along with Cisco and Alcatel to second-tier, plagued by a portfolio that did not include a market-leading product line.

Again, make no mistake RIM faces some major strategic and tactical challenges amid fierce competition from Apple, Google and Samsung. If RIM continues to stumble, the company could implode. But with the right moves, RIM could regain its industry-leading status.

For more thoughts on whether RIM could become the next Nortel, check out this MarketWatch column by Bill Mann.

Another interesting read is TechCrunch’s John Biggs, who declares that RIM is “done” and that it will sold in the next year or so, probably to Microsoft.

Mike Zafirovski.’s Nortel Legacy: Fail

Mike Z.With Nortel deciding the only course of action is a fire-sale of all assets, Mike Zafirovski’s reign as CEO is about to conclude. Without being too harsh, it’s fair to say Mike Z.’s initial – and perhaps last – stab as a CEO was a colossal failure.

Sure, he dealt with some pesky accounting issues and reduced costs by laying off thousands of employees, outsourcing jobs to low-cost places, and selling a few assets. But the bold moves that Nortel needed to survive and thrive in a volatile and competitive marketplace never materialized.

A perfect example is how Nortel’s lack of M&A activity, especially given Mike Z. hired George Riedl, an M&A wizard, away from Juniper. When your biggest acquisition is Tasman Networks for $99-million, it’s obvious you’re not in the game.

In hindsight, Nortel had nothing to lose by playing it safe and conservative. With cash in the bank and a stock price that, at one point, rebounded to nearly $20, Mike Z. had lots of options to do something dramatic and game-changing. Instead, he stuck to a game-plan he knew from General Electric.

To solely blame MIke Z. would be unfair. If people are looking for scapegoats, Nortel’s board is the perfect candidate. Over the past decade, the board has been a huge disaster.

Here are some of the lowlights:

- It let ex-CEO John Roth go a multi-billion dollar spending spree, many of which were mistakes that Nortel wrote off or sold

- Dismissing Gary Daichendt and Gary Kunis’ aggressive corporate makeover

- The hiring Frank Roth and Bill Owens as CEO, who were unsuited for the job.

- Letting Mike Z. do nothing as Rome (aka Nortel) burned.

Truth be told, Nortel could have been saved if the right moves had been made. When Mike Z. took over, it was a $10-billion that needed strategic focus and a new, bold direction. Mike Z. was handed a huge opportunity to make his mark.

Unfortunately, he dropped the ball and, as a result, Canada’s flagship high-tech company is going to disappear.

For more, check out James Bagnall’s story in the Ottawa Citizen.

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The End of Nortel?

Is the end in sight for Nortel?

After announcing plans for even more restructuring, including the sale of its Metro Ethernet Network business, investors are bailing on Nortel – The stock is down 40%, or $2.14, to a all-time low of $3.15. It now trades at 0.24% of its record high, and sports a paltry market cap of $1.57-billion.

The big question is whether Nortel’s struggles are specific to a company struggling to reinvent itself, of an indication the telecom equipment market is poised for drastic consolidation amid a fierce competitive landscape and volatile economic times in which large customers putting the brakes on spending.

In short, it’s a sad day for Nortel and Canada’s high-tech landscape.

If you read between the lines of the press release and listen closely to the conference call earlier day, you’ll appreciate why CEO Mike Zafirovski describes it as a “pivotal” moment for Nortel, adding that “We clearly understand the status quo is not an option for Nortel”.

The most significant message is Nortel has officially – and finally – decided it can’t be all things to all people. It can no longer remain competitive and viable by developing a broad technology portfolio that tries to meet the needs of a wide variety of carrier and enterprise customers.

In the end, Nortel will be a much smaller company. That is, if Nortel remains a standalone entity.

“There is a challenge in being highly relevant in multiple areas of business,” Zafirovski said during the conference call. “We are realistic in today’s environment with our blanace sheet that as much as a number of us believe we can be successful in various segments, the view is that we will be very advantageous to take some decisions and focus on fewer areas.”

One of the key questions involving the sales of the Metro Ethernet Network business is who will acquire it and what they might be willing to pay – a key consideration given Nortel is looking for the deal to strengthen its balance sheet.

UBS analyst Nikos Theodosopoulos hit the nail on the head when he asked this question:

“The logical buyers in the market are also suffering from similar macro issues and it could cause limited amount of interested parties to buy it given the desire to maintain cash. Have you seen interest expressed recently in that business by motivated buyers willing to pay cah for this business? Or are you entertaining the thought process that it is a valuable asset and buyers will emerge?”

Zafirovski’s responded by saying:

“We will not provide details of context in terms of discussions. We have gone through broad level dicusisons internally and with the board. We have used an investment banker from the outside, and gone thorugh varoius options in respect to growth and opportunities to monetize.”

More: Tech Trader Daily has more details as does All About Nortel and Between the Lines.

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Is the Pay Phone Dead?

Anyone used a pay telephone recently? If you said “no”, you’re probably not alone.

Once a telecom staple and a high-profile part of the urban landscape, pay phones are quickly disappearing as wireless devices become increasingly popular. In Finland where nearly everyone has a wireless phone, the pay phone is slated to disappear next month.

You won’t see many tears once the pay phone goes the way of the dinosaur but they have served us well since being launched in 1889 in Hartford, Conn. Before wireless devices became all the rage, a modest dime was all you needed to use a pay phone – although the cost has jumped to a scandalous $0.50 in Ontario and Quebec.

There is, however, hope that the pay phone – or, at least, the pay phone booth – could have some life left. These booths could be turned into Internet/e-mail access depots using Wi-Fi, which would be convenient for people without mobile Web access who want to access their e-mail, blog or send someone a photo.

For more, check out this Toronto Star story.

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Mobile Skype..Finally!

Skype is terrific – a free or low-cost tool to make long-distance phone calls. More than 100 million registered users can’t be wrong, right? One of Skype’s few Achilles Heels is the difficulty using it on a wireless device, which would be terrific given how expensive it can be to make a long-distance call on wirelessly. There is , however, an answer to the mobile Skype dilemma with the official launch today of Mobivix, a global calling service that which, among other things lets you make unlimited and free Skype calls and free global mobile calls between Mobivox users. I’ve been using the Montreal-based company’s service for about a week, and I love it. Using some pretty terrific voice recognition software, Mobivox has proven its value just by allowing me to call other Skype users. I like it so much, I’d pay for premium services, and I don’t offer that admission too often these days. By the way, Mobivox is dead easy to use and doesn’t involve a software download. All you do is register for the service online, and access it using a local number in more than 20 countries. For more on Mobivox, which has received venture financing from BrightSpark and Skypoint, check out GigaOm.

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