Q&A with Mike Z.

The Globe and Mail has a Q&A today with Nortel CEO Mike Zafirovski. One of the first questions is: “Do you pay attention to all the noise, such as the blogs that focus on Nortel?”, which makes me wonder whether the question is referring to All About Nortel. 🙂

Sadly, Mike Z. deftly sidesteps the question by saying that “It does good to create jobs for people. With all those blogs, it is another way we are helping the Canadian economy.”

For the life of me, I have no clue what he means. I guess I was hoping he’d say something like “I love blogs, particularly All About Nortel because it’s so insightful”. One can dream, right?!

Anyway, one of the more interesting questions was whether Nortel has to make an acquisition given the speculation it made a bid for Avaya and may be interested in 3Com. Here’s what Mike Z. had to say:

“With respect to acquisitions, 80 per cent of them fail. But I’ve done 80 to 90 acquisitions in my life and I’m pretty comfortable that the majority were done well. I’m not prejudiced on where growth is going to come from – organically or through acquisitions. But we are committed to growth, and we have earned the right. Last year, we did not have the systems, the foundation, the processes to manage our company well, let alone integrate somebody else.”

If you boil down his answer, I think he’s saying “maybe”…or “yes”…or “no”.

Nortel Opens Facility in Turkey

 

Nortel’s move to lower costs by opening facilities in lower-cost geographies took another step forward with the opening of a a new “Centre of Excellence” in Istanbul, Turkey. The facility, which was part of an announcement that year that also included a move into Mexico, will provide support for customers around the world, network technical support for North American customers, and network integration and technical support for customers in Europe, the Middle East and Africa.

Nortel CEO Mike Zafirovski said the facility is “an important milestone in the Nortel story. This center is vital to improving customer support as we enter a new era of communications driven by the convergence of three powerful megatrends we believe are significantly changing the industry – hyperconnectivity, communications-enabled applications and true broadband.”

Translation: If Nortel wants to lower operating costs, increase gross margins and boost profits, the company needs to leverage lower-cost places such as Turkey, Mexico and China. As Canada’s flagship high-tech stories, a big question is how many more jobs will be moved out of Canada and the U.S., especially high-paying R&D positions.

Analyst Update

Here’s some recent activity by financial analysts:

– Robert W. Baird lowered its 2007 revenue estimate to $11.2-billion from $11.5-million, while raising its EPS target to 75 cents from 74 cents. For 2008, Baird is looking for revenue of $11.6-billion and EPS of $2, compared with an earlier estimate of $11.7-billion and $2.11 respectively.  Meanwhile, RBC Capital Markets lowered its 2007 EPS estimate 44 cents from 47 cents on flat guidance; CIBC World Markets lowered its 2007 estimate to EPS of 72 cents on revenue of $11.4-billion from $1 on $12.4-billion; and Prudential Equity Group lowered its 2007 estimates to 17 cents from 45 cents and its 2008 estimates to $1.23 from $1.54.

Merrill Lowers Revenue, EPS Targets

After meeting with CEO Mike Zafirovski recently, Merrill Lynch analyst Vivek Arya decided to lower his 2007 revenue estimate to $11.48-billion from $11.78-billion amid concerns the company will see a 12% to 15% decline in wireless sales, which accounted for 44% of overall sales in 2006. Arya also reduced his 2007 EPS target to 68 cents from 74 cents (compared with the average estimate of 75 cents), and his 2008 EPS forecast has been dropped to $1.48 from $1.55.

The Nortel PR Machine Strikes Again

Obviously putting aside the recent restatement and the surprising departure of its CFO, CRN Australia has a glowing story on Nortel called “Is this Nortel’s Year?” that puts the spotlight on the fine folks within Nortel’s media relations group. According to the article, CEO Mike Zafirovski is doing a great job, Nortel’s enterprise efforts are starting to gain momentum and its channel partners are getting more enthusiastic. Of course, this may be all true but the rule about Nortel that everyone should have learned in recent years is you need to throttle back your enthusiasm just in case.

Nortel-LG Unveil Set-Top Box

Nortel unveiled another part of its IP-TV strategy with the launch of a set-top box for carriers looking to offer television services to consumers. The box, which will be built by Nortel’s LG-Nortel joint venture, could put an end to speculation that Nortel is looking to make an acquisition to get into the business, which includes rival such as Cisco and Motoroal. Nortel has been using Cambridge, U.K.-based Amino Communications as a set-top box partner. Consultant Rob Enderle told LightReading that Nortel could established a foothold in the set-top box business by making it work extremely well with other Nortel gear used by carriers – thereby making it difficult for rivals to get into the market. “You only have a few companies in each geography that can sell products of this class, so you could have a chance to lock someone out,” Enderle says.

Thanks, Duncan!

Duncan Stewart was kind enough to cite my blog within a column he wrote for the National Post on different ways for retail investors to get information these days. After mentioning newspapers and Web sites such as Seeking Alpha, he talked about blogs – and highlighted how my posts on Joel Hackney were way ahead of the mainstream media.
Update: I also got mentioned – and quoted – in the News Observer today.

Hackney Story Finally Picked Up in Canada

It took almost a week but the Canadian media has finally picked up on the Joel Hackney parking lot rage story. The Ottawa Citizen has a story on the front of today’s business section. Unfortunately, it’s behind a walled garden but it describes Hackney as one of the company’s management “stars”. According to Nortel spokeswoman Ann Fuller, the company “conducted a comprehensive review and determined it was an isolated incident”.
Update: For more about Hackney, the News Observer did a profile on him last June.

Zafirovski’s E-mail About Hackney

This is an internal e-mail that Mike Zafirovski issued about the Hackney “incident”.

“All of us at Nortel have an obligation to act with personal and professional integrity. These behaviors are the hallmarks of great leaders and great companies. I place as high a value on integrity and ethics as I do our goals of driving superior performance and business results.

As many of you know, there has been great concern recently because of an incident involving one of our co-workers and a leader, Joel Hackney. Given the nature of this incident I want to personally restate our commitment to ethics and integrity and share the action we have taken.

Last October, following a basketball game that he attended with his wife and children, Joel was involved in an incident that resulted in him entering into a consent agreement, which means he is required to complete certain actions by May 2007 before the charges will be completely dismissed.

Nortel takes this incident very seriously and, for the last six days, Chief Compliance Officer Bob Bartzokas has led a rigorous review involving numerous external and internal interviews (the internal interviews were with employees in and outside of Joel’s organization). This process was comprehensive in nature and I want to assure you that we took full account of all the employee input and response we’ve received regarding the incident.

Bob and the Compliance Committee completed their review and concluded the October incident was isolated. The Committee recommended certain appropriate actions and advised the board of directors of its findings and recommendations. The specific details of the actions will remain private, as they would for any Nortel employee.

Joel deeply regrets this incident and the impact it is having on everyone concerned. Knowing my intent to update you today, he asked me to share the following statement:

“I want you to know that I am taking full responsibility for the consequences of my actions. I have also communicated my personal apology to Ms. Ogden. I know this incident has caused embarrassment for my family, my employer and my co-workers. I am truly sorry.”

Joel is a leader with an important mandate who will need to continue to challenge his team to perform at world-class levels while exemplifying our leadership and core values. His track record includes very strong results and his leadership capability has been validated by employee assessments (as recent as December 2006), which included feedback from all of his direct reports. That said, I know Joel is taking this incident very seriously and will use it to work to become an even better leader.

I am absolutely confident of Joel’s ability to execute our business objectives, and he has given me his full assurance that he will hold to the highest ethical and professional standards expected of a Nortel leader.

Mike Z

Yet Another Restatement?

You had to know it was only a matter of time before Nortel restated its results again, right? Nortel and its principle operating unit, Nortel Networks Ltd., will restate their financial results for 2004, 2005 and the first nine months of 2006, and will make adjustments to periods prior to 2004. So, what’s up? Apparently, it has to do with third-party errors related to employee benefit plans and – surprise, surprise – timing errors on the recognition of revenue.

“This restatement has no material impact to our fourth quarter 2006 operating expectations or performance, ” said CFO Peter Currie, who’s leaving the company next month after abruptly announcing his resignation a few weeks ago. “During 2006, we have implemented significant remedial measures and other actions to address our internal control weaknesses. This has resulted in a substantial reduction of control weaknesses as at year end and represents a major milestone in our journey toward consistent, reliable and timely financial reporting.”

While the restatement is relatively minor, it’s certainly not a positive sign for a company that appeared to be gaining its footing again and more confidence from investors. Nortel said it expects revisions to its previously reported 2006 nine month results that will boost revenues and improvements in net earnings by about $24 million and $15 million, respectively. Its 2005 results will decline by $28-milion while losses will climb by $87-million. Revenue in 2004 will rise by $33-million while the net loss will increase by $42-million.

Was Nortel Microsoft’s Second Choice?

Nortel’s been talking up its unified communications partnership with Microsoft in recent months – part of CEO Mike Zafirovski’s strategic partnership plan. Avaya, however, claims it was Microsoft’s first choice but turned down the opportunity because it didn’t want to license its content control technology to Microsoft. “They came to us to offer that deal and we turned them down, and now they’re coming back to try again,” said Karyn Mashima, senior VP of strategy and technology, told Computer Business Review. That said, it sounds like there’s some sour grapes between Avaya and Microsoft as Mashima adds that Microsoft was asking to license Avaya’s “crown jewels”, and that Microsoft has realized its alliance with Nortel isn’t strong enough to take on Avaya or Cisco. “It’s fine for the Nortel installed base, but Microsoft is getting asked a lot by its customers about the relationship with us.”

Technorati Tags: Microsoft, Avaya

Another Take on Hackney

The News Observer’s Barry Saunders has a column on the parking lot/road rage incident involving Nortel senior VP Joel Hackeny, who recently admitted to being guilty of false imprisonment, assault of a female and uttering threats.

Nortel to Demo IP-TV Portfolio

You know the IP-TV business is getting serious when there’s an IPTV World Forum happening in London. Of course, Nortel will be there demonstrating “how real-time multimedia and entertainment services can be converged onto the TV to improve the user experience by providing greater control over the home communications environment.” Nortel will also unveil a new partner for developing new TV services.

On the IP-TV front, the biggest news recently was Ericsson’s intention to buy Tandberg TV for $1.4-billion – a 10% premium to Arris’s offier. In a recent report, UBS Securities said Ericsson’s flurry of IPTV deals recently illustrate how serious it has become about the business, although the investment firm suggests integrating these purchases may be a challenge. Of the other big telecom suppliers, UBS said Alcatel/Lucent may have to respond to Ericsson’s move by acquiring encoding/video-on-demand technology, while Cisco is well-positioned. UBS said Motorola lacks edge routers, metro and access technology, Nokia-Siemens’ portfolio does not include encoding/VOD and edging routing, while “NT’s competitive position in IPTV remains weak”.

“While Nortel’s public stance is to compete in the IPTV market, its competitive position is very weak in our view as it only has the Metro transport part of the solution,” UBS said. “While the company could pursue acquisitions to quickly enter the IPTV market, there would be many product holes to be filled in, including Access, Edge Aggregation/routing, Encoding/VOD, and Middleware, making any entry in to the IPTV market tough and likely irrational in our view. We believe Nortel shareholders would not view acquisitions in the IPTV market favorably.”

Update: Accenture recently released a study on IP-TV. Not surprisingly, more than half of communications industry executives believe IP-TV can generate significant revenue within the first three years of service.

Nortel’s PR Dilemma

So what should Nortel do from a public relations perspective about the Joel Hackney “incident” (aka parking lot/road rage). So far, the media coverage of Hackey’s admission of being guility of false imprisonment, assault on a female and communicating threats have been limited to a few outlets in North Carolina this blog (the number of page views on the post written on Feb. 22 have been four to five times average daily traffic, while there have been a flurry of comments).

From what I can tell, Nortel has not issued a comment on Hackney’s admission of guilt but there have been sugestions Hackney has directed all media inquiries to Nortel. So does Nortel issue a statement? Or does the company stay quiet while it tries to determine what action, if any, to take against Hackney? Clearly, Nortel CEO Mike Zafirovski needs to figure out how whether the whole thing will quickly blow over, or whether it has the potential to become one of those issues that could blossom into something more serious if Nortel fails to do something sooner rahter than later.

From a public relations perspective, if Nortel chooses to say nothing then what does tha tsuggest to employees, particularly those who’ve written comments on this blog about Nortel’s code of conduct. But if Nortel makes a statement, they risk making this “incident” a bigger deal. I imagine there are some serious PR meetings happening this weekend, which could make Monday an interesting news day. Stay tuned.

Does Zafirovski Keep Hackney?

When CEO Mike Zafirovski was rebuilding Nortel’s senior management team last year, he wanted to attract high-quality people with strong character, which made sense given the accounting scandal that had engulfed the company in 2004 and 2005. So, what does Zafirovski do with Joel Hackney, senior v.p. of operations and quality, who admitted he was guilty of false imprisonment, assault on a female and communicating threats following a road rage incident in a parking lot after a basketball event last October in North Carolina?

According to the criminal complaint filed against Hackney, he cut off Alicia Ogden in his Audi SUV. When she honked at him, he got out of his car and asked if she had a problem. “He then grabbed the left side of my face,” Ogden said in the affidavit. “I told him not to touch me and he responded that he’ll do what he wants.” (Source: The News Observer) So does Zafirovski keep Hackney, who has agreed to 50 hours of community service and written an apology to Ogden, or does he cut him loose?

Prediction: Hackney gets a slap on the wrist but the incident gets brushed aside as a first-offender, he’s truly sorry, will-never-happen-again kind of thing. Either that or Hackney “resigns” with a nice package.

Technorati Tags: Joel Hackney, Mike Zafirovski