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Comments on Your Comments
Location: Ottawa, Canada
First of all, thanks to everyone for the spirited commentary. I appreciate your passion. Although many of the comments were “off-topic” (as Bob pointed out in #26), I think for the most part it was a worthwhile and interesting dialogue. Although realistically I cannot possibly respond to every input, I do want to offer a few comments and observations on some of the key themes that came through, so I’ve picked a few specific comments that I think capture the themes.
Theme 1 – “Stock Price Down, Nortel Bad”
Fred, #20, made an interesting statement that the CEO of Nortel is bullish about the company’s prospects (“Nortel has turned the corner,” “Nortel is a stronger company now”), yet the stock price is down. That is certainly a statement of fact. The CEO (and for that matter, the CTO 
) and most of the organization are bullish on the prospects of this company given our 112-year history, our culture of innovation, and the progress we’ve made to date on the transformation (which I wrote about in the last post). But, yes, the stock price is down for Nortel, as it is with every one of our competitors. Tech is down. Large macroeconomic issues are at play. The market is bearish. And Nortel, like its peers (perhaps more so than some) is being impacted. I’m a technologist, not an economist, but here are two observations I’ve made about stock prices over the years: 1) the telecom industry tends to over-rotate; and 2) stock prices are rarely an indicator of the current and realistic performance of an industry or a company. Consider the stock prices of 1999-2000 versus the actual performance of the industry at that time, and then ask yourselves if that degree of inaccuracy could also be manifesting itself today in the low stock prices of many companies, including Nortel.
Theme 2 – The New Ads
With respect to the actual topic of the post – our new advertising campaign – there were some interesting observations and opinions, which I respect … ads inspire emotion and our reaction to them is mostly subjective. A couple of points I’d like to clarify/highlight though. The comment from Required (#3) – “Nortel obviously sees itself as a global outfit, not based in Canada/NA” – is an interesting one because of the negative overtone in which it was made. The reality is that, yes, Nortel is a global company and about 50% of our revenues come from outside North America. In fact, although our headquarters are in Canada, only about 7% of our revenues come from Canada. We have a global footprint and we do business in 150 countries around the world (not Antarctica :-)), so the ads attempt to cover the fact and the reality that the telecom opportunity is indeed global, which is consistent with our strategy.
Torben (#17) offered some interesting and insightful assessments of what he sees as the strengths and weaknesses of this technology/product-focused advertising campaign, the first of its kind and scale in Nortel for quite some time. One of the limitations, he felt, was that the ads failed to highlight Nortel differentiation. My perspective is somewhat different. Every one of the ads actually does focus on an area where Nortel has exhibited leadership and technological differentiation, which I discussed in some detail in the blog entry itself. In a 30-second ad, though, I agree that it’s hard to articulate the details of differentiation in any depth, and that’s partly why I also encouraged those of you looking for more to read the Nortel Technical Journal. I encourage you to download it and then determine whether or not Nortel has technological depth and differentiation.
For me, the ads resonate and do a good job of capturing the themes of innovation, the need for the telecom world to evolve, and the broader challenges the industry is facing. I also think they put Nortel into the discussion, reinforcing that we have an opinion and a strategy and are worthy of consideration. If the ads at least put the Nortel brand in front of the customer base and spark some consideration, then they are functional.
Theme #3 – Lack of Nortel executive participation in the blog
Another theme throughout was about the lack of Nortel executive participation in this dialogue. First, I’m actually impressed with the dialogue you had among yourselves, which is exactly what an Internet 2.0 should facilitate and, as Optimistic said (#29), I think the real value came in the constructive comments and thoughtful observations. For the record, I DO read all of your comments (as do others in Nortel) – and some have responded (including our Tax Expert and Marketing VP for Carrier) – but it’s unfortunately not possible to respond in a timely manner to everyone. Doing a separate entry and addressing the comments in bulk is the most efficient way for me to participate, so if I don’t comment directly and immediately, don’t assume I don’t care or that I don’t read your comments. I do, but there are only so many hours in a day and much more to do in the transformation.
That transformation is also taking the energy and focus of other executives. Many of the questions you were asking are similar to the ones asked by the financial analysts during the recent Earnings call – which is the formal way that Nortel communicates its financial progress. This channel is transparent though, and available for all to hear. If you have not listened to the Q4 Earnings call, I encourage you to do so. You can access it here. Many of your questions are addressed there, and you can hear firsthand from Mike about where we are in the transformation. Additionally, all of our investor events are accessible online, so feel free to watch or listen to the playbacks.
Theme #4 – New Products
And finally, a significant amount of dialogue was spent on discussing the new product pipeline. Another Nortel Watcher (ANW - #37), obviously with some internal experience at Nortel, described a host of products that were great technology, positioned for the market, and abandoned at the launch pad. And he is absolutely correct. Several years ago, this company – and many others in the industry – because of the pressure in the post-bubble era became very focused on existing products and platforms and, by in large, did not deliver many new products to customers. What is incorrect, however, is the assumption that Nortel is operating that way today. While not all new product ideas become real products, in the last two years we have delivered in the neighborhood of 300 major new, feature-rich products to the market and, more importantly, have created a pipeline of new innovative technologies.
In fact, we are today investing 20% of our R&D dollars in new technologies, up from single digits a year and a half ago. That pipeline is starting to yield fruit. Yesterday, in fact, we announced our 40Gig/100Gig Optical solution (as Bob recognized today in #66). This solution quadruples the network’s capacity without complex network re-engineering or significant capital and operating expense. And we are already selling our solution to important customers around the world, including Verizon, Neos Networks, and TDC. In fact, we have more than 20 40Gig wins/trials to date or planned with this solution. And, within the next several months, we will begin to ship our Agile Communication Environment (ACE), which will allow us to inject communications functions into any applications framework. It’s a real product, developed in the last year, and it’s now hitting the market.
Additionally, over the last year, we have shifted 3% of R&D dollars into incubation projects – start-ups within Nortel that are rapidly creating new market-expanding and forward-looking technologies outside of the existing business unit structure. The first of those products should hit the market this year. Will they all be successful? No. But, quite frankly, we have turned the engine toward new technologies and the delivery of those new technologies, and the last year has been probably the best year Nortel has had in a long time in getting new technologies and products out the door.
So, great points ANW (#37). For the record, I offer two corrections. You mentioned the fact that Mesh was one of those products suffering under the previous model. You are right. However, last year we moved that product line into the WiMAX business unit to better align with our go-to-market strategy and also created a dedicated business, marketing, architecture, and supply chain structure to enable it to thrive. Since then, Mesh has started to focus on the emerging market, which is where we believe the largest short-term opportunities are. And we’re making good progress. We now have #2 market share (based on $), according to an Infonetics report published a few weeks ago.
The second correction is related to MCS5200. The MCS5200, now named AS5200, together with our CS2000 Session Server Lines, is our market-leading SIP application server that has shipped over 5M SIP lines to leading customers like Orange, Telefonica, Bell and many others.
And, lastly, many (#36) makes the point that some of our new technologies – LTE, PBT, 40Gig, Unified Communications (which are actually highlighted in the commercials) – are in fact unproven, or at least the market has not solidified around them.You are absolutely correct, but I would argue that these are new technologies in new markets and the only way to grow the business is to participate in early markets with superior technology. By being there, we have the opportunity to compete and win.
Bottom line … I’m an optimist, but I’m also a realist. This is a company, as Mike Z has said repeatedly, that is in transformation. We are restoring a great icon to its appropriate place as a leader in the industry. This is a multi-year process that will require a dramatic change in our organization and our business. At the end of the day, the reason I take the “glass is half full” approach is because this industry – even with change and economic turmoil – is exciting. And it’s exciting because it is bigger today then it was yesterday, and it will be bigger tomorrow than it is today. Why? Because we haven’t solved all the communications problems, nor connected all the people, nor created in the electronic world the equivalent of human-to-human communications in terms of transparency, experience, and effectiveness. And Nortel is an exciting place to be. We have a vision and a strategy for our transformation. And that transformation is real, it is happening, and we are in better shape as a company than we have been for years.
Thanks to all for your input and comments.
