Nortel CEO Bill Owens sees 'exciting future'

After the announcement earlier this month of more workforce cuts and seven executive-level firings, Nortel Networks' top executive Tuesday said the network equipment maker is still investing heavily in research and development and looking forward to a "pretty exciting future."

In a roundtable discussion, Nortel CEO Bill Owens also expressed concerns about a future consolidation of several networking equipment vendors, including tough new Chinese competitors.

Players such as Huawei Technologies are "very competitive and are competing in the Western world and the U.K. and in places I would not have expected them to be," Owens said. "They have good products, but we will compete with them."

Huawei has a joint venture with 3Com, and Owens said Nortel is considering different ways of protecting itself against competitors, including setting up its own partnerships or joint ventures. "Everybody (in the industry) is talking to everybody," Owens said.

At the same time, he said Chinese competitors will create pricing pressures and predicted that profit margins for all companies in the networking industry are "likely to go down."

His comments follow news two weeks ago that the company would lay off about 3,500 of its 35,000 workers and the announcement that it had fired seven finance executives as the result of an independent review of Nortel's financial results for 2001-04. Owens actually replaced the former Nortel chief in April, who was dismissed in connection with the same financial probe.

Owens noted the "roller coaster ride of the last few years" at Nortel, which has seen its workforce drop from 100,000 to 35,000 and its stock price dip from US$100 per share to 40 cents per share at one point.

Nortel is still spending as much per employee on R&D as its competitors -- about $2 billion a year since 2002, a spokeswoman said. Last week, Nortel estimated its revenue at $5.1 billion for the first six months of 2004, with expenses at $2 billion, including sales, general and administrative expenses, and R&D, according to a statement. About half of Nortel's workforce is devoted to engineering, Owens said.

About 22 percent of Nortel's revenue come from enterprise customers, with the remainder coming from wireline, wireless and optical products sold to service providers, according to financial records.

Opportunities to expand revenue include finding ways to make the Internet and wireless links more secure, Owens said. He also said Nortel will try to market itself better to its customers and has appointed a board-level business-development executive to help out with that effort.

Clent Richardson, vice president of global marketing at the company, said that "Nortel is not particularly good at marketing ... and that's one of the reasons I'm here."

One analyst familiar with Nortel, Zeus Kerravala at Detwiler, Mitchell, Fenton & Graves, said Nortel has long been known for "good engineering, poor marketing," which means a renewed focus on marketing could help. Kerravala also said that Nortel's financial reporting problems haven't been a concern of customers and that Nortel is probably the only networking equipment vendor aside from Cisco Systems to offer products and services to both service providers and enterprise customers.

"It helps customers that Nortel has knowledge in both areas," he said.

As a result of the recent executive-level firings, Owens also said that Nortel is appointing a vice president for ethics and compliance, but he denied that there's an entrenched culture of wrongdoing at Nortel.

"Is there a cultural issue of doing wrong? I will say I've never seen a company more intent on doing things right," Owens said. Nortel's problems have been over financial accounting, including when to accrue profits and revenues, and an independent review is under way to change processes and personnel and to report corrected numbers by the end of September, he said.

"We will be pure, as pure as I can make this company," Owens said.

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