Notrel Networks Case Study
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NORTEL Networks Case Study
Chief Strategy Office
Outline
■ ■ ■ ■ ■
Nortel Overview Nortel’s Decline & Fall Recent events Our Proactive approach Summary
Confidential , not for distribution
NORTEL Overview
■ ■ ■ ■
Founded at 1914 Headquarters in Toronto, Canada 33K Employees (before recent layoffs) $10Bn 2008 revenue 2008E Sales by Product Line
2008E Sales by Geography 6%
16% 41%
16%
18%
53%
25% 25%
Carrier
Enterprise
GS
MEN
NA
EMEA
APAC
LA
Confidential , not for distribution
Decline & Fall
2001/2 2001/2: 2000: Wrong Technology bet Revenue drop, Losses, expensive M&A’s Huge Layoffs Slowing growth & Managers and key personnel churn abandonment
$3.2Bn for Xros
$7.2Bn for Alteon
2003: Signs of recovery and going back to Profit R&D offshore New Optical products p
2004: Financial reporting g mess…. CFO leaves CEO fired!
2005: 2005 New initiatives overshadowed by losses, losses lawsuits and CEO replacement p
Revenues ($Bn)
30
Out of DSL
25 20
Closing Xros
Back to DSL
Failing DSL
15 10 5
Terabit Router
Stoping Terabit Router
Ignoring IP/MPLS
Wimax
0 2000
2001
2002
2003
2004
2005
2006
2007
2008
Confidential , not for distribution
Decline & Fall Continues… 2006: New CEO 2007: appoints new Offensive management moves and a new vision to get back while cutting costs and selling non on track in light of continued strategic product lines SEC problems
$3.2Bn for Xros
$7.2Bn for Alteon
2008: 2008 Focus change from IPTV to optical transport
Revenues ($Bn)
30
Out of DSL
25 20
Closing Xros
Back to DSL
Failing DSL
IPTV
PBT
15 10 5
Terabit Router
Stoping Terabit Router
Ignoring IP/MPLS
Wimax
0 2000
2001
2002
2003
2004
2005
UMTS Sold to ALU 2006
2007
2008
Confidential , not for distribution
Recent Events
9/2008: MEN division for sale
11/2008: Decentralization…
1/2009: Chapter 11
Decentralization
MEN announcement
Chapter 11
Confidential , not for distribution
Recent Events
9/2008: MEN division for sale
11/2008: Decentralization…
Approaching Nortel’s Tier-2/3 customer base, proactively, with plans / tenders for NG networks p Offering Nortel’s customer base replacement of their legacy equipment q p Offering Nortel’s customers maintenance / managed services for the existing install base
1/2009: Chapter 11
Recruitment of services personnel Addressing Nortel’s Nortel s partners
Confidential , not for distribution
Summary
■ ■ ■ ■ ■ ■
Nortel s fall begun in 2000 Nortel’s Accelerated fall in 2008 Constant monitoring of every move Tracking key competitors with the similar core businesses… businesses … but be ahead of your competitors Proactive approach Tiger, Tiger, burning bright In the forest of the night…
Confidential , not for distribution
Nortel Revenue Breakdown MEN Sales Breakdown ($m) 400 350 300 250 200 150 100 50 0
55
78 62
305
300
Q3 2007 Q
Q2 2008 Q
Optical Networking
255
Q3 2008 Q
Data Networking and Security
■ MEN 2008 revenues are ~ $1.6Bn ■ Optical p networking g sales are declining g at 15% q q/q q and 16% yr/yr [we suspect that customer churn has already begun] Source: Global Insight
Confidential , not for distribution
Decentralization
■ On Nov 11th 2008 ; Nortel issued Q3 results announcing: ■ Operational cost cuttingg aimed to save $400m on 2009 ■ Decentralization of several business functions and refocus ■ ■ ■
around vertically-oriented business units: Enterprise Solutions; Carrier Networks and MEN. MEN R&D, marketing, sales, services, and operations will all be decentralized into these vertical business units. Workforce reduction of ~1,300 people (25% on 2008 & the rest on 2009) Executive departures due to the decentralization process
To our view the decentralization process was aimed towards selling assets rather than keep the company as an intact entity entity. Source: Nortel 3Q08 Press Release
Confidential , not for distribution
Chapter 11 When a business is unable to service its debt or p pay y its creditors, the business or its creditors can file with a federal bankruptcy court for protection under Chapter 11 I Chapter In Ch t 11, 11 in i mostt iinstances t th the d debtor bt remains i iin control t l of its business operations as a "debtor in possession", and is subject to the oversight and jurisdiction of the court. The court can grant complete or partial relief from most of the company's debts and its contracts. Sometimes, if the business's debts exceed its assets, the bankruptcy restructuring results in the company's owners being left with nothing; instead instead, the owners' owners rights and interests are ended and the company's creditors are left with ownership of the newly reorganized company. Source: Wikipedia
Confidential , not for distribution
Global Partners
■ Approach Nortel partners http://app89.nortelnetworks.com/partnerlocator.asp
Confidential , not for distribution
Potential Negative Outcomes for Nortel ■ Most vendors have already begun seeing Nortel less and ■ ■ ■ ■ ■ ■
less as a threat in light of a history of weak financials, restructuring and layoffs Under Chapter 11 Nortel Nortel’s s competitive position will be extremely vulnerable across all of its product lines and businesses Customers will question Nortel’s ability to meet their longterm networking and communications systems needs Customers will lower their purchases until they see if the buyers just want to gain market share or be able/want to deploy / support / improve Nortel’s product lines E i ti customers Existing t are certain t i to t delay d l sizable i bl investments Demoralizing g effect on p personnel Previous restructuring failed to bring Nortel back on track Confidential , not for distribution
Potential Negative Outcomes for Nortel
■ Customers have long term uncertainty regarding ■ ■
■
which product lines are going to remain under Nortel OPEX cuts, especially R&D, will hurt product competitiveness and consequently push customers to look for alternative vendors Global services – Carriers using Nortel’s application services and managed services may question the ability bilit tto maintain i t i th the same llevell off service i iin lilight ht off the decentralization process of the GS into the business units Customers relying on Nortel alone should establish a secondary supplier relationships Confidential , not for distribution
Chief Strategy Office
Outline
■ ■ ■ ■ ■
Nortel Overview Nortel’s Decline & Fall Recent events Our Proactive approach Summary
Confidential , not for distribution
NORTEL Overview
■ ■ ■ ■
Founded at 1914 Headquarters in Toronto, Canada 33K Employees (before recent layoffs) $10Bn 2008 revenue 2008E Sales by Product Line
2008E Sales by Geography 6%
16% 41%
16%
18%
53%
25% 25%
Carrier
Enterprise
GS
MEN
NA
EMEA
APAC
LA
Confidential , not for distribution
Decline & Fall
2001/2 2001/2: 2000: Wrong Technology bet Revenue drop, Losses, expensive M&A’s Huge Layoffs Slowing growth & Managers and key personnel churn abandonment
$3.2Bn for Xros
$7.2Bn for Alteon
2003: Signs of recovery and going back to Profit R&D offshore New Optical products p
2004: Financial reporting g mess…. CFO leaves CEO fired!
2005: 2005 New initiatives overshadowed by losses, losses lawsuits and CEO replacement p
Revenues ($Bn)
30
Out of DSL
25 20
Closing Xros
Back to DSL
Failing DSL
15 10 5
Terabit Router
Stoping Terabit Router
Ignoring IP/MPLS
Wimax
0 2000
2001
2002
2003
2004
2005
2006
2007
2008
Confidential , not for distribution
Decline & Fall Continues… 2006: New CEO 2007: appoints new Offensive management moves and a new vision to get back while cutting costs and selling non on track in light of continued strategic product lines SEC problems
$3.2Bn for Xros
$7.2Bn for Alteon
2008: 2008 Focus change from IPTV to optical transport
Revenues ($Bn)
30
Out of DSL
25 20
Closing Xros
Back to DSL
Failing DSL
IPTV
PBT
15 10 5
Terabit Router
Stoping Terabit Router
Ignoring IP/MPLS
Wimax
0 2000
2001
2002
2003
2004
2005
UMTS Sold to ALU 2006
2007
2008
Confidential , not for distribution
Recent Events
9/2008: MEN division for sale
11/2008: Decentralization…
1/2009: Chapter 11
Decentralization
MEN announcement
Chapter 11
Confidential , not for distribution
Recent Events
9/2008: MEN division for sale
11/2008: Decentralization…
Approaching Nortel’s Tier-2/3 customer base, proactively, with plans / tenders for NG networks p Offering Nortel’s customer base replacement of their legacy equipment q p Offering Nortel’s customers maintenance / managed services for the existing install base
1/2009: Chapter 11
Recruitment of services personnel Addressing Nortel’s Nortel s partners
Confidential , not for distribution
Summary
■ ■ ■ ■ ■ ■
Nortel s fall begun in 2000 Nortel’s Accelerated fall in 2008 Constant monitoring of every move Tracking key competitors with the similar core businesses… businesses … but be ahead of your competitors Proactive approach Tiger, Tiger, burning bright In the forest of the night…
Confidential , not for distribution
Nortel Revenue Breakdown MEN Sales Breakdown ($m) 400 350 300 250 200 150 100 50 0
55
78 62
305
300
Q3 2007 Q
Q2 2008 Q
Optical Networking
255
Q3 2008 Q
Data Networking and Security
■ MEN 2008 revenues are ~ $1.6Bn ■ Optical p networking g sales are declining g at 15% q q/q q and 16% yr/yr [we suspect that customer churn has already begun] Source: Global Insight
Confidential , not for distribution
Decentralization
■ On Nov 11th 2008 ; Nortel issued Q3 results announcing: ■ Operational cost cuttingg aimed to save $400m on 2009 ■ Decentralization of several business functions and refocus ■ ■ ■
around vertically-oriented business units: Enterprise Solutions; Carrier Networks and MEN. MEN R&D, marketing, sales, services, and operations will all be decentralized into these vertical business units. Workforce reduction of ~1,300 people (25% on 2008 & the rest on 2009) Executive departures due to the decentralization process
To our view the decentralization process was aimed towards selling assets rather than keep the company as an intact entity entity. Source: Nortel 3Q08 Press Release
Confidential , not for distribution
Chapter 11 When a business is unable to service its debt or p pay y its creditors, the business or its creditors can file with a federal bankruptcy court for protection under Chapter 11 I Chapter In Ch t 11, 11 in i mostt iinstances t th the d debtor bt remains i iin control t l of its business operations as a "debtor in possession", and is subject to the oversight and jurisdiction of the court. The court can grant complete or partial relief from most of the company's debts and its contracts. Sometimes, if the business's debts exceed its assets, the bankruptcy restructuring results in the company's owners being left with nothing; instead instead, the owners' owners rights and interests are ended and the company's creditors are left with ownership of the newly reorganized company. Source: Wikipedia
Confidential , not for distribution
Global Partners
■ Approach Nortel partners http://app89.nortelnetworks.com/partnerlocator.asp
Confidential , not for distribution
Potential Negative Outcomes for Nortel ■ Most vendors have already begun seeing Nortel less and ■ ■ ■ ■ ■ ■
less as a threat in light of a history of weak financials, restructuring and layoffs Under Chapter 11 Nortel Nortel’s s competitive position will be extremely vulnerable across all of its product lines and businesses Customers will question Nortel’s ability to meet their longterm networking and communications systems needs Customers will lower their purchases until they see if the buyers just want to gain market share or be able/want to deploy / support / improve Nortel’s product lines E i ti customers Existing t are certain t i to t delay d l sizable i bl investments Demoralizing g effect on p personnel Previous restructuring failed to bring Nortel back on track Confidential , not for distribution
Potential Negative Outcomes for Nortel
■ Customers have long term uncertainty regarding ■ ■
■
which product lines are going to remain under Nortel OPEX cuts, especially R&D, will hurt product competitiveness and consequently push customers to look for alternative vendors Global services – Carriers using Nortel’s application services and managed services may question the ability bilit tto maintain i t i th the same llevell off service i iin lilight ht off the decentralization process of the GS into the business units Customers relying on Nortel alone should establish a secondary supplier relationships Confidential , not for distribution
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