The Globe and Mail has an article today looking at Nortel’s R&D operations/campus in Ottawa, which consist of 4,000 people and two Tim Horton’s coffee shops. The story is based on an interview with CTO John Roese (check out his blog), who talks about how Nortel’s need to better focused and more efficient when it comes to R&D, which means reducing costs. It’s unclear, however, whether cost-reductions involve things such as more efficient procurement, or whether it means the number of R&D employees around the world will be reduced.
Nortel CEO Mike Zafirovski has talked about Nortel maintaining its R&D spending at about 15% of total revenue but the company has also talked about the company being focused and not wasting money on skunk-work projects. And as much as everyone likes to talk about Nortel’s heritage as an innovator, the reality is Nortel is developing and selling new and different projects through joint ventures and partnerships with companies such as IBM, Microsoft and LG. This may mean internal R&D – while still important – can take on a different, more focused role on key technologies such as IP-TV and WiMax.
It appears that Nortel is turning more into a systems integrator for networks while phasing out most older product lines. With not many new products in the pipeline, partnerships are leveraging their global sales footprint is one way to move forward. Essentially R&D is turning into more an outsourced function as network equipment increasingly gets more commoditized.
R&D Spending…
If I’m not mistaken, the TARGET is 15% for R&D spending as a percentage of revenues. I think Nortel is around 17% right now (we’ll see for sure once 4Q06 / 2006 financials are released); I believe the sale of UMTS Access has helped reduce costs.
More cost reductions are still needed to get to 15%, therefore cut cut cut…. did I say cut?
Bill Ritchie
R&D–did you say “for sure!” Nothing is “for sure” when it comes to Nortel’s financials!
Anti-Z
R&D investment will continue to decrease in North America and increase in 3rd world countries, like all high tech companies
So, Will Nortel Cut R&D Costs or Not?
The Globe and Mail has an article today looking at Nortel’s R&D operations/campus in Ottawa, which consist of 4,000 people and two Tim Horton’s coffee shops. The story is based on an interview with CTO John Roese (check out his blog), who talks about how Nortel’s need to better focused and more efficient when it comes to R&D, which means reducing costs. It’s unclear, however, whether cost-reductions involve things such as more efficient procurement, or whether it means the number of R&D employees around the world will be reduced.
Nortel CEO Mike Zafirovski has talked about Nortel maintaining its R&D spending at about 15% of total revenue but the company has also talked about the company being focused and not wasting money on skunk-work projects. And as much as everyone likes to talk about Nortel’s heritage as an innovator, the reality is Nortel is developing and selling new and different projects through joint ventures and partnerships with companies such as IBM, Microsoft and LG. This may mean internal R&D – while still important – can take on a different, more focused role on key technologies such as IP-TV and WiMax.