Marconi looks to future

When you think of Marconi, you now should think only of switch routers and optical gear.

In an effort to regain profitability, the company had revamped itself to focus on only these products and to get rid of side interests unrelated to these areas. It has convinced its creditors that this is the route to success.

Starting in January, the company will wipe clean much of its US$6 billion in debt, start shopping around some of its divisions and proceed under watchful eyes of the banks that lent it money and that will own 99.5 percent of its stock. Unlike many other network companies, it has accomplished this without filing for bankruptcy.

With the reorganization comes a new name - Marconi Corp., replacing Marconi LLP - and a more modest set of financial goals. Whereas the company took in $7 billion in its last full fiscal year, under the new plan its goal will be only $4 billion. It also hopes to profit by $199 million, which is a stark contrast to the $8.6 billion loss it suffered in its last fiscal year.

That new business plan calls for reducing research and development from 12 percent to 10 percent of sales, a cut that is compounded because sales projections also have dropped. R&D money will drop from $840 million to $400 million, based on figures the company has released.

This new financial outlook stems from lessons learned after Marconi got caught up in the exuberance and optimism of network boom times and borrowed too much.

"We overextended ourselves," says Joe Pajer, Marconi's executive vice president of broadband routing and switching. "We simply borrowed too much money and spent too much money."

Marconi set its plan to trim down the company last spring and has worked since to convince the banks that lent it money that it could turn itself around. The creditors decided to give the company a chance, rather than sell its assets.

"They could have liquidated us and gotten a certain amount on the dollar, or looked at our plan and decided whether that is going to produce a better outcome than taking us to liquidation," Pajer says.

Marconi's flagship products in North America will continue to be its multiservice switch, the BXR 4800, which combines the properties of switches and routers as a hedge against the types of networks service providers build. This switch is supplemented by other gear that largely came from Marconi's purchase of FORE Systems for $4.5 billion in 1999.

If providers choose ATM networks, for instance, the BXR 4800 can switch ATM. If providers choose IP, it can route IP. It can do both at the same time and bridge the two. So it can take in ATM, for example, but switch the traffic and put it out as IP or Multi-protocol Label Switched packets.

Outside North America, where Marconi claims to have top penetration into carrier optical networks, the company will focus more on its optical gear that ranges from add-drop multiplexers to optical cross-connects.

When the new company name takes effect in January, Marconi will look to sell some of its other ventures including its medical systems, commerce systems and data systems divisions. It also will sell some real estate and its interest in an Italian lottery company.

This financial restructuring should help the company sell its gear.

"With the company internally suffering from reorganization and flagging financial results, it will be hard to market [its] advantage to carriers," Current Analysis senior analyst Fintan O'Halloran wrote in June.

But with a new plan for profitability, the company can better convince potential customers that it will be around for the long term.

"This financial question has been a black cloud," Pajer says.

With a better balance sheet, the company may be able to make inroads against established competitors Alcatel, Lucent, Nortel and Siemens, which have had financial troubles of their own.

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