Notrel Networks Case Study

NORTEL NetworksNORTEL Networks Case Study

Chief Strategy OfficeChief Strategy Office

Outline

■ Nortel Overview■ Nortel Overview■ Nortel’s Decline & Fall■ Recent events■ Recent events■ Our Proactive approach■ Summary■ Summary

Confidential , not for distribution

NORTEL Overview

■ Founded at 1914■ Founded at 1914■ Headquarters in Toronto, Canada ■ 33K Employees (before recent layoffs)■ 33K Employees (before recent layoffs) ■ $10Bn 2008 revenue

2008E Sales by Product Line 2008E Sales by Geography

41%

18%

16%

53%25%

16%6%

25%

Carrier Enterprise GS MEN

25%

NA EMEA APAC LA


Decline & Fall

2001/22003:

20052000: Wrong Technology bet

expensive M&A’s

2001/2: Revenue drop,

Losses, Huge Layoffs

Signs of recovery and

going backto Profit

2004: Financialreporting

2005: New initiativesovershadowed

by lossesSlowing growthand key personnel

abandonment

Huge Layoffs& Managers

churn

to ProfitR&D offshore

New Opticalproducts

gmess….

CFO leavesCEO fired!

by losses,lawsuits

and CEOreplacementp p

Revenues ($Bn)$3.2Bn for Xros

$7.2Bn for Alteon

20

25

30Out of DSL Closing

XrosBack to

DSLFailing DSL

0

5

10

15

Terabit Router

Stoping Terabit Router

Ignoring IP/MPLS Wimax


02000 2001 2002 2003 2004 2005 2006 2007 2008

Decline & Fall Continues…

2006: New CEO 2007: 2008appoints newmanagement

and a new visionwhile cutting costs

2007: Offensive

movesto get back

2008: Focus change

from IPTV to opticalwhile cutting costs

and selling nonstrategic product

lines

on track in lightof continued

SEC problems

to opticaltransport

Revenues ($Bn)$3.2Bn for Xros

$7.2Bn for Alteon

20

25

30Out of DSL Closing

XrosBack to

DSLFailing DSL IPTV PBT

0

5

10

15

Terabit Router

Stoping Terabit Router

Ignoring IP/MPLS Wimax

UMTS Sold to

ALU


02000 2001 2002 2003 2004 2005 2006 2007 2008

Recent Events

9/2008: MEN division for sale

11/2008: Decentralization…

1/2009: Chapter 11

Decentralization

MEN announcement Chapter 11


Recent Events

9/2008: MEN division for sale

11/2008: Decentralization…

1/2009: Chapter 11

Approaching Nortel’s Tier-2/3 customer base, proactively, with plans / tenders for NG networks

Recruitment of services personnelAddressing Nortel’s partnersp

Offering Nortel’s customer base replacement of their legacy equipment

Addressing Nortel s partners

q pOffering Nortel’s customers maintenance / managed services for the existing install


services for the existing install base

Summary

■ Nortel’s fall begun in 2000■ Nortel s fall begun in 2000■ Accelerated fall in 2008■ Constant monitoring of every move■ Constant monitoring of every move■ Tracking key competitors with the similar core

businessesbusinesses…■ … but be ahead of your competitors■ Proactive approach■ Proactive approach

Tiger, Tiger, burning brightIn the forest of the night…


Nortel Revenue Breakdown

MEN Sales Breakdown ($m)

55 7862

200250300350400

305 300 255

050

100150200

Q3 2007 Q2 2008 Q3 2008Q Q Q

Optical Networking Data Networking and Security

■ MEN 2008 revenues are ~ $1.6Bn■ Optical networking sales are declining at 15% q/q p g g q q

and 16% yr/yr [we suspect that customer churn has already begun]

Confidential , not for distributionSource: Global Insight

Decentralization

■ On Nov 11th 2008 ; Nortel issued Q3 results■ On Nov 11th 2008 ; Nortel issued Q3 results announcing:■ Operational cost cutting aimed to save $400m on 2009g■ Decentralization of several business functions and refocus

around vertically-oriented business units: Enterprise Solutions; Carrier Networks and MENSolutions; Carrier Networks and 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■ 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

Confidential , not for distributionSource: Nortel 3Q08 Press Release

selling assets rather than keep the company as an intact entity.

Chapter 11

When a business is unable to service its debt or pay its p ycreditors, the business or its creditors can file with a federal bankruptcy court for protection under Chapter 11I Ch t 11 i t i t th d bt i i t lIn Chapter 11, in most instances the debtor remains in control of its business operations as a "debtor in possession", and is subject to the oversight and jurisdiction of the court. The courtsubject 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 the owners' rights and interests areleft with nothing; instead, the owners rights and interests are ended and the company's creditors are left with ownership of the newly reorganized company.Source: Wikipedia


Source: Wikipedia

Global Partners

■ Approach Nortel partners■ Approach Nortel partners http://app89.nortelnetworks.com/partnerlocator.asp


Potential Negative Outcomes for NortelNortel

■ Most vendors have already begun seeing Nortel less and■ 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’s competitive position will be■ Under Chapter 11 Nortel s competitive position will be extremely vulnerable across all of its product lines and businesses

■ Customers will question Nortel’s ability to meet their long-term networking and communications systems needs

■ Customers will lower their purchases until they see if the■ 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 t t i t d l i bl■ Existing customers are certain to delay sizable investments

■ Demoralizing effect on personnel


g p■ Previous restructuring failed to bring Nortel back on track

Potential Negative Outcomes for NortelNortel

■ Customers have long term uncertainty regarding■ Customers have long term uncertainty regarding which product lines are going to remain under Nortel

■ OPEX cuts, especially R&D, will hurt product■ 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 bilit t i t i th l l f i i li ht fability to maintain the same level of service in light of

the decentralization process of the GS into the business unitsbusiness units

■ Customers relying on Nortel alone should establish a secondary supplier relationships


secondary supplier relationships

Notrel Networks Case Study

Documents

Transcript of Notrel Networks Case Study