Down, Down Deeper And Down: The fate of Nortel

Rock bands are incredibly good at re-inventing themselves.

Think of Led Zep’s mega-successful O2 gig a year ago, Status Quo back on tour this year, the likes of Deep Purple, Stones etc , all still going strong. And when I say “re-invent” actually they’re just churning out minor variations on an old theme, or no variation at all – just the original played 30 or 40 years after in a, ahem, somewhat more mature fashion.

Unfortunately, it’s not quite so easy in the IT world, hence Nortel’s fall from grace as it moves into Chapter 11 territory. And, amidst daily reports of thousands upon thousands of job losses by the major vendors – be they networking or mainstream IT – the obvious question is, who is next to fall by the wayside?

But starting with Nortel’s demise, it’s not over-stating the case to say that certain things in life are predictable – and I don’t mean simply observing last month’s stock performance, when they plummeted to as low as 37 cents from a recorded high of $17.17 – and that’s a 52-week high for 2008, not an historical one – but more that I predicted this eight years ago.

Nortel was a really good client of mine, with excellent an excellent network product range – largely through acquisition – developed during the ’90’s. Then, around the start of the current decade, just as the first pops were sounding in the .com bubble, I wrote an article for a LAN magazine in Holland, where I studied the acquisition trends of the major network vendors, what they had acquired, what they had done with it and what directions there were publicly heading in.

For Nortel, the answers were very illuminating. Courtesy of a product matrix, identifying products against target markets/customers, I was disturbed to note that many products which had been developed for the SMB and enterprise markets – real customers in other words – were being matched-up against the Service Provider market space. Having, by this time, met many ISP top-level guys and noted how they were wasting billions of $$$ of US pension funds on the manic chase for physical networks (“real estate or land-grab”) across the world and creating unfeasibly grand OpEx as a result, while having nothing to offer customers other than bandwidth and loss-leading Internet access, I didn’t exactly see this an ideal long-term sales strategy by Nortel (and others). After all, how many global ISPs do you need?

So, in choosing to ignore the 93% of the global market that is SMB business, the warning signs were well and truly lit for me. Moreover, I then did a project for Nortel, testing a beta version of a very promising unified messaging system which promptly got canned before release. At this time I was working with both the LAN-oriented Nortel Networks (primarily the Bay Networks acquisition plus other acquisitions) and the traditional, voice-oriented Nortel of origin. And I could see the two halves a perfect circle did not make. And now, in looking at the Nortel product range – beyond what the company has OEM’d – it’s fair to say that the product a tad off the pace. Interesting how the ‘spin-off’ Netgear seems to have been rather more successful through focus and a realistic product range.

And now we’re back in full-on merger mode, as I described earlier in the week. Given the history of mergers (remember 3Com and US Robotics?) is this a sign of panic or truly the way forward? Only time will tell. Funnily enough, talks of Nortel merging with just about everyone on the planet had been rife for the past two years. Maybe folks aren’t that desperate to form mergers…

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