Nokia-Siemens Do Deal. What Now, Mike Z.?

Do you think Nortel CEO Mike Zafirovski got much of a surprise this morning to read about the mega-deal between Nokia and Siemens? Many people had expected Nortel would have been involved in a merger/JV with Nokia or Siemens but, instead, Nortel has been left on the sidelines as a $19.9-billion, 60,000-employee entity called Nokia-Siemens Networks has been created. So what now, Mike Z.? Do you pursue a deal with Siemens' enterprise business given you seem so intent on Nortel becoming a viable alternative to Cisco. Do you do a deal with Motorola Inc. to create a stronger wireless (CDMA) business? Or do you try to stay independent for a little while longer while you finish fixing Nortel and hope the stock price gets a heart beat again? A key reason for the Nokia-Siemens deal is creating an entity with lower costs that can compete more effectively given Siemens and Nokia expect the Nokia-Siemens will be able to slash expenses by $1.9-billion a year. This reality is a fact of life in the telecom equipment business to deal with shrinking profit margins amid intense competition. For any player trying hoping to stay viable, they have two choices: seek deals that create major synergies and/or restructure themselves, which is the route Nortel and Mike Z. are currently taking. But at some point, Nortel may have no choice but to dance with someone. The question is whether there will be anyone left on the dance floor? For more on the Nokia-Siemens deal, check out Mathew Ingram and Om Malik.


3 Responses to “Nokia-Siemens Do Deal. What Now, Mike Z.?”

  1. AnonC Says:

    Mike Z has made much of developing a 3 year strategic plan for Nortel. Today, his grand strategy got spanked by the reality that the economy, his customers and his competitors are not standing still.

    Has he really created a sense of urgency within Nortel with a 3 year deadline on vague fuzzy targets? Is the continued spending 17 – 20% of Sales on R&D with very few demonstrated product hits the best way to spend money? Is postponing further workforce restructuring make any sense when the Nortel admits their revenue is only growing in the low single digits?

    I think the analysts have been WAY too easy on Mike Z. He doesn’t have 3 years to turn this around Nortel, he only has 1.

    In my silly opinion, this is way past time to priortize to high impact projects, cut R&D spend by $300 – 500m and layoff 5000 staff (as painful as that would be). The company needs to be cash flow positive by Q4, with improved operational metrics, or this is all over. Otherwise the stock will be so weakened, someone might try taking a run at the company. And I doubt that if Nortel does a 1:10 reverse split they will enjoy the massive redillution from a poison pill defense.

    One final point, if there are ever ever ANY. MORE. RUMBLINGS. about financial reporting problems, CFO Peter Currie should be frogmarched out the front door immediately. If Finance can’t figure out what revenue is, it is time for new people.

    As a investment, everyone should just stand clear of Nortel until the endless talking is turned into hard results on a consistent basis.

    Again, just my silly opinion.

  2. Anonymous Says:

    Agree but turning around is not easy. I’d say 1 year is too much to expect for a turnaround. However, 1 year should be enough to know what to focus on, the direction and get the company marching. 2 years I think should be enough time for a turnaround.

    These 2 years are going to be critical and will decide whether the company stays or has to break up. A $10B business in everything telecom cannot be successful anymore.

  3. AnonC Says:

    I completely agree that this will not be easy, however the longer Mike Z drags this out, the greater liklihood that middle tier management will try to wait this out (just at they waited out Bill Owens and G Daichendt), and not institute the hard cultural changes necessary to transform Nortel.

    Any major cultural tranformation must start with a top level realization that is a variant of “if we do not fundamentally change the way we do business, this company – regardless of our long history – will die” This shared sense of urgency (though not panic) has to drive everyone (including middle tier management) to make the changes necessary. A profitable $6 to 8 billion company with 15 to 20k employees is much better off than a barely breaking even $10b company with 30k employees.

    I strongly believe that if Nortel cannot show some positive financial performance improvement by end of this year Nortel will either be viewed as irrelevant by the marketplace, or become a target for hostile takeover that will distract Sr. Management from running the business.

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