Lots of Unanswered Questions

By Mark Evans | Published: November 13, 2008

Question Mark
Here’s what I’m curious about:

1. Nortel is planning on cutting 1,300 positions but despite announcing plans on Sept. 17 that it was restructuring, no one seems to have lost their job yet other than four senior executives: John Roese, Lauren Flaherty, Dietmar Wendt and Bill Nelson.

It seems like a bizarre way to conduct business. Imagine if you’re a hard-working Nortel employee, and you have no idea whether you’re going to be among the 25% who’s going to lose their job over the next two months or one of the 75% slated to get turfed in early-2009.

So, what would you do? Either you’re looking for another job outside Nortel, or you’re doing some serious brown-nosing within the company to keep your job or find another position. Either way, lots of Nortel employees are probably doing something other than being focused on work.

And if you’ve got a big chunk of your employees worried more about being employed than working, what do you think the fourth-quarter numbers are going to look like? My prediction is pretty bad.

2. Just wondering if Nortel is going to replace its chief technology officer (Roese), chief marketing officer (Flaherty), global services president (Wendt) or executive vice-president of global sales (Nelson)?

If not, then it’s obvious Nortel is being chopped into three distinct entities with their own management teams – enterprise, carrier and the metro Ethernet networks business, which is already operating as a quasi-standalone entity.

It begs the question whether Nortel is being positioned to be sold in chunks somewhere down the road. Check out Red Herring for more on the breakup scenario.

3. What’s the board doing these days? If they, in theory, approved the dumping of four senior executives hired as part of Mike Zafirovski’s senior management overhaul, then what does that say about their confidence in Mike Z.?

Speaking of the four senior executives, why let them go now? Three of them – Roese, Flaherty and Wendt – were hired just two years ago while Nelson joined only 10 months ago. If they weren’t doing the job, shouldn’t Joel Hackney have been axed as well given Nortel’s still far being a major player in the enterprise market.

4. What’s Zafirovski’s future? There’s no doubt he’s a good operations, finance and sales guy but what’s been his strategic vision?

5. Finally, how long before Nortel files for bankruptcy protection?

The company is burning through cash at an alarming rate, the chance of it selling any of its assets for a major amount of cash are dwindling by the day, and senior management seems unwilling to perform radical surgery to get the patient on the road to health.

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  • NewAge

    These questions need to be answered…
    Especially the last one…

  • 1derY

    There is no shame in not going down with your ship Captain Z !.

  • Clint

    Here are your answers from my inside sources.
    Rumour, innuendo, speculation to follow.
    That's all people have to go on until hard, impacting, healing decisions are made. They missed the boat with the pitiful revelations Monday so it is a complete crap shoot now.

    #1} Apparently Only employees in divisions that are officially on the block have been told they are not part of the new announcments or unfinished numbers from last year. So yes you can imagine how business is affected in CN and Enterprise, not to mention the angst the rest of the employees feel. A complete disaster while the BOD and Mike do nothing.
    Pitiful thing is they could easily target the amount announced with absolutely no impact to operations, revenue, or a line of business sanity, but as usual they F*** around too much and drag their feet. How do they fill the number. Do they decide based on the circus known as peformance reviews from a year earlier, do they look at their performance in 08? Service, Salary, Who knows?
    I would think what you earn is a pretty important predicator at NT these days.
    #2) All signs point to selling off ALL the LOB.
    #3) The board are doing nothing. John Manley is on the board. That tells you all you need to know.
    #4) Waiting to secure more money before he leaves on the one of the few lifeboats with rations, water and no hole in it.
    #5) This is the big question. With every week that goes by it seems that inevitable date draws closer.

  • Employee

    There was a large number of architects and research developers from the CTO organization given their layoff packages yesterday. Sadly, many of these senior people were loyal to the company and tried to their last day to drive some innovation into the product groups.

  • tryn2survive

    Senior execs don't get laid off, they get to pull the rip cord on the Golden Parachutes……. They can't qualify for a bonus so a nice severance is the next best thing.

  • more

    I surmise that NT's continued existence hinges upon tapping into the TARP program with Secretary Paulson.

  • Anon

    During September's call, MikeZ mentioned that some of the proceeds of the MEN sale were to be used for severance packages. Canadian NT employees have been fortunate in receiving generous packages due to common law. Rumors are flying around that there were only 1300 layoffs because that's all NT can afford. If that's the case then the company is already circling the drain.

    If MEN is proving to be a hard sell, Carrier will be an even harder sell with its aging product portfolio. Wireless has been hollowed out with CDMA data (EV-DO) and WiMAX base stations being OEMed, a geriatric GSM line and a hail-mary pass effort on LTE. Does anyone know what else is in the Carrier division that may have value?

    Clearly, MikeZ is positioning the company for break-up, but it's probably too late. A sad day for Canadian hi tech is on the horizon.

  • An0n

    Don't under estimate Carrier business. If Huawei could capture the wireless, it would secure them a solid #2 in CDMA and possibly N.A. and would double the barrier for E// to come in and clean house. Also there are a lot of contracts that act like annuities for existing footprint. Nortel also usually holds a number #1 position in VoIP ports. All of this gives you footprint which is the basis of most future sales in the industry (becomes yours to loose, but by no means is a guarantee) as layering the next thing usually prevails over greenfield.

    Packages are the new bonuses. Good luck getting one. Attrition is so high, the lack of packages forces the self guided exit even more.

    As for TARP – wrong country guys. Time to knock on Export Canada's door (again!)

  • Tongue.In.Cheek

    My thoughts on some of your questions.

    1. Nokia Siemens Networks announced on Tuesday that they are downsizing 1,850 positions. That's about 40% more positions lost than Nortel. Sounds like we should keep a close eye on them too right? From a sales perspective, if a sales person is motivated by commission earnings, then they will continue to sell. I'm far more concerned about the state of the economy and the business justifications that a customer needs to make now to spend money, but that impacts everyone in this business.

    2. When a business is vertically integrated, the functions of Technology, Sales, Marketing and Services management become integrated into the business units. There is no more need to have these functions at a corporate entity. In some respects its a GE business model but also a business model that was used at Nortel 10 to 15 years ago. In Enterprise, perhaps it will be Phil Edholm providing CTO-like leadership given what we see from him today.

    5. They have $2.3 Billion in Cash and no debt due until mid-2011. Excluding the Deferred Tax and Goodwill write-downs, they lost about $200 Million this quarter. The new restructuring is scheduled to save $400 Million annually, reducing that loss and negative cash flow. I don't see Chapter 11 for at least another 24 months based on these fundamentals. The question then becomes more about the global economic strength, customer buying partners and Nortel's ability to execute at that time.

    At a broader level, Nortel is structuring itself that would allow for a simple sale of their business units with the right offer. Digging into the 10Q, it was interesting to see that the Goodwill writedowns were against the MEN and Enterprise business units, effectively giving them each a zero goodwill balance which I would think would simplify a future sale of either unit.

    I continue to think that MEN is a Fujitsu candidate and Enterprise an IBM candidate.

  • TheSkyisFalling

    Can Mike be sued?

  • http://nortelinsider.wordpress.com/ Desk Jockey

    1. Yes, people are worried. But they have been through this before, albeit not as bad as this. You are right that perhaps some, but not all, people are in survival mode rather than focused on being productive. It's just basic rational thinking. Why work your ass off it it'll all go to waste in a year or so?

    2. None of them will be replaced as their positions are now all superfluous given the silo-based restructuring. And Nortel is definitely being positioned to be pawned off – the only problem is no one is buying. Even if anyone was interested they are waiting until BK hits to get it at firesale prices, like Barclay's did with Lehman Bros.

    3. BoD is on a vacation, as they have been for the past little while. They don't like MZ but they can't get rid of him 'cause they don't have a hope in hell of finding someone to replace him. And a company without a CEO? Though that might be better considering MZ's performance, how would that appear to investors?

    The Carolina Strangler wasn't removed (though he should have been) since he is MZ's right hand man, been with him through the GEniuses days and Motorola. They are in it together and MZ likely campaigned hard to keep him on board, threatening to resign if he should be forced to give up Hack-Attack.

    4. MZ has a good history, albeit not at Nortel. His credentials pre-Nortel were impressive but since then he has proven he cannot run a Telecom. His vision of running a large business involved in so many fields clouded his judgment. Quite unfortunate, really. He will find a place though, even though he does not have to worry about his financial future like so many other non-executive NT employees.

    5. BK is likely within 12-18 months…

  • http://nortelinsider.wordpress.com/ Desk Jockey

    Sued? For what? Gross incompetence? Failing to deliver on promises?

    Not likely. Him and his GEniuses will probably ride off into the sunset, singing “Money (That's What I Want)”

  • http://nortelinsider.wordpress.com/ Desk Jockey

    TARP is for financial institutions to ease the mortgage and credit crisis. Not for troubled telecoms. Furthermore, there are limits on executive compensation when entering the program. Will the current team of Z-ombies agree to that?

  • Observer

    As usual Mark you don't get it. The company can't lay many people off because accounting rules force anyone who does a layoff to allocate cash for severance immediately. The company is better off continuing operations until someone either comes and buys up the assets or they file for bankruptcy protection. The reason the layoff numbers were so low this time is because this is the last go around for Nortel and there simply isn't enough cash to layoff large numbers of people. They are better off bleeding slowly over time rather than burning thru all their cash thru layoffs. Its going to get uglier not just for Nortel but for others in every other sector as well. This is the worst global economy since the 1970s and likely to get much worse very soon. Did anyone notice Cisco cut their forcast by a net 20 percentage points ? I'll go out on a limb and say Cisco will have layoffs en masse soon. That doesn't bode well for the rest of the industry.

  • http://nortelinsider.wordpress.com/ Desk Jockey

    Agreed, if you got the package this time, or even sometime this year consider yourself lucky. You are the “chosen” few.

  • Should have sold in Feb 2004

    Regarding the number of layoffs, you are absolutely correct. Pavi Binning stated so in the teleconference; they didn't want to take on more charges. I listened to some of the analysts in the Q&A and none of them seemed too panicked or condemning in their questioning. So, I don't understand all of the recent downgrades when NT has already been ridiculously downgraded. They beat the consensus estimate only losing $.30/share excluding writedowns compared to anaylsts estimate of $.36/share.

    It's pretty obvious that with the new org structure that the executives mentioned will not be replaced; their roles will be taken on by people in each business unit vs. the enterprise/matrix structure. Mark, did you listen to the teleconference?

    Just learned Mark Sue from RBC put a $0.00 price target on NT…what a joke!! Yet he still thinks they may be around for a couple of years. Things can change A LOT in a couple of years!

  • resigned_in_2005

    Regarding item: 1 – employees “doing something other than being focused on work” has been going on for the last 6-7 years (or you can use the 60,000 former employees as the duration measuring stick).

  • less

    Isn't this what socialism was invented for; to ensure the prole masses stay in charge, always have money and never stress over anything?

    Bummer it isn't quite working. Must be the secular oil cycle to blame, like back in '73.

  • seeker

    I think you are right dude. Nortel cannot afford massive lay offs. That's why they are behind in there last announcement(still 1200 to go)and the reason they expect only 300 or so to go this year. They've been saying it for a while now :'We need to preserve cash' and that's what they have been doing by counting nearly every penny they spend. I guest they do announce lay offs because they have to assure the market that they are doing something !!!

  • Nortel watcher

    It makes no sense to announce layoffs and the consequential savings that will be realised if those jobs are not vacated in time.

    I heard, however, that the Nortel office in sunny south Florida did begin layoffs. Perhpas that Barrios kid will not be a softy like his predecessors Joannou and Behar were with the hired help and their South American expats.

  • Keith

    Has anyone considered Back to the Future, could BCE unspin Nortel and bring it back under the fold?

  • Gail

    Don't kid yourself. I was laid off Nov 6 along will several of my colleagues – remnants of the 2007 layoffs – with more to come. When will Nortel figure out that destroying peoples incomes is not the answer to their problems.

  • Another Nortel Watcher

    Yes, MZ can be sued. Suing him as a member of the board is easier than suing him as CEO. It won't hurt him personally because all officers of Nortel are insured against such lawsuits. However, if the insurance company feels that lawsuits are coming, they can apply pressure to the board to act.

  • fedupwithstupidity

    During his time at NT, MZ has thoughtlessly and unimaginatively copied verbatim Jack Welch’s business philosophy, processes, tactics, strategies and HR system, which he learned while he was at GE. The irony is that GE has moved on in many ways from the old JW GE rule book that MZ is using. He says he was mentored by JW, but he didn’t learn anything other than JW’s methods (which can be obtained in a pocketbook at Chapters). As a matter of fact, he has done a very poor job in executing the JW GE management system. A true mentor of JW would ideally have learned how to create his own business strategy like JW did at GE, one that was properly matched to the uniqueness of NT; at the very least, they would have learned how to execute on the JW method. As others have commented, the JW system was developed to manage a huge holding company, but until recently, NT has been a matrix organization. Why did MZ wait so long to begin decentralizing NT? Especially given that he was applying a holding company model to a matrix org and was not a fan of a matrix org? The NT board and many employees were suckered in by the JW/GE mystique that MZ was selling. It was and is B.S. You cannot manage a company in a complex dynamic technology industry by ineffectively cloning ideas and methods developed many years ago for a very different company in a different era. The stupidity is staggering; the results are shocking and heartbreaking.

  • http://nortelinsider.wordpress.com/ Desk Jockey

    Too much Lean Six Sigma and black belts running around spouting BS about DMAIC, all caught up and high on their own delusions to realize that the ship was headed for an iceberg.

  • http://nortelinsider.wordpress.com/ Desk Jockey

    I feel sorry for you (never good to lose your job) but realize that many who are still with the company may get even less when the SS Nortanic finally dips below the surface…

  • John

    “So, what would you do? Either you’re looking for another job outside Nortel, or you’re doing some serious brown-nosing within the company to keep your job or find another position. Either way, lots of Nortel employees are probably doing something other than being focused on work.”

    Now translate that to the North American auto workers……..how well are their cars being built by workers constantly having their thoughts occupied with job security.

  • http://nortelinsider.wordpress.com/ Desk Jockey

    Dude, what are you talking about? The “prole masses” are the ones being screwed here, be it the stockholders or the employees.

    And to insinuate that the employees “never stress over anything” is a charge beyond recognition. It is easy to point fingers from the outside.

  • lostfaithandquit

    Let Mike Z. go and save the millions. The split can be handled as a financial transaction by Pavi.

  • lostfaithandquit

    Let Mike Z. go and save the millions. The split can be handled as a financial transaction by Pavi.

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