NORTEL in the Financial Times
FEATURES: From the brink of bankruptcy
By Scott Morrison
Financial Times; Feb 06, 2004
Frank Dunn is far too measured for outbursts of triumphalism, but to say he feels vindicated would be the understatement to end them all.
"We climbed a hill that no one thought could be climbed," says the chairman and chief executive of Nortel Networks. "And it feels pretty good."
When he landed the top job in 2001, Mr Dunn seemed to face a hopeless task. The Canadian telecommunications equipment group, built-up during a frenzy of acquisitions through the 1990s, was heavily in the red and appeared to be heading only for the bankruptcy courts.
To make matters worse, Wall Street questioned whether the new CEO had the experience, vision or temperament for the job.
Steve Levy, an analyst at Lehman Brothers, was among those who questioned the promotion of the former chief financial officer following the resignation of charismatic Nortel boss John Roth.
He says: "It's safe to say I was sceptical, not because I knew anything about him, but because of the way he was given the job. He was the only one who didn't step backwards when they asked for volunteers."
Two years and 60,000 job cuts later, however, Nortel appears to be emerging from the downturn fitter than ever. Manufacturing has been outsourced, whole lines of business dropped. Consistent investment in technologies including voice over internet protocol (Voip) telephony - using the internet to carry phone calls - is paying dividends.
The share price, once reduced to penny share status, has almost doubled since the beginning of the year.
Nortel's recent results speak for themselves. The company has notched up a number of large contract wins during the past few months, including two big wireless-equipment deals in Europe and China, as well as deal to supply internet telephony gear to Verizon, the US carrier.
Last month, the company reported fourth quarter sales and earnings that comfortably beat expectations. On a yearly basis, Nortel had a $732m profit on $9.8bn in sales. The figures prompted many analysts to raise their forecasts for the coming year.
Spending by large telecommunications service providers has stabilised, even if it has not yet improved. Corporations in other industries are feeling more optimistic about capital expenditure than they have since the downturn began.
As Mr Dunn points out, however, this would matter little if Nortel had not made the right technology bets two years ago in the bottom of the downturn. He also resisted intense pressure from analysts who urged him to make deeper cuts to research to bring costs down faster.
Like many high-tech groups, Nortel has no plans to resume the acquisition binge which it embarked on in the 1990s. Mr Dunn says the company lost its focus as it bought too many companies and tried to do too much at the height of the telecoms bubble. |
