Nortel calls on former Motorola exec to replace Owens

Nortel Networks’s next chief executive promised to bring integrity, strategic focus, innovation and double-digit operating margins back to Canada’s largest telecommunications equipment maker.

The Brampton, Ont.-based firm on Monday said Mike Zafirovski, 51, would replace William Owens on Nov. 15. Zarifovski comes to Nortel from Motorola, were as chief operating officer he was largely credited with turning around its troubled PCS handset business. Zarifovski also spent 25 years in senior executive roles with General Electric.

During a press conference in Toronto, Zafirovski said he will be spending the next four weeks learning about Nortel with its chief financial officer, Peter Curry, and how he could profitably apply the firm’s R&D investments towards commercial enterprise customers.

“I’m thrilled to take over but I’m not at all confused to the challenges facing us,” he said.

“We work way too hard, we go through too much pain, to have operating margins of low single digits. We can’t expect anything less than the teens in operating margins.”

Owens, who took over Nortel following a tumultuous period that included charges of improper financial reporting, said he was not asked to step down.

“We’ve managed to stabilize the company to put the spirit of ethics and integrity back into the day to day operations, all the things people at Nortel wanted to happen, to find some new markets, and to restore our faith in this great company,” said Owens, whose voice cracked with emotion during his prepared remarks. “This is a great fellow we have coming in. You can sense a real soul. There is a real soul in this gentleman who will take this company to that next step.”

Iain Grant, an analyst with the SeaBoard Group, welcomed Zafirovski’s plan to reexamine the corporate market.

“Enterprise has been the poor country cousin to the more sexy parts of Nortel’s business for many years,” he said. “If Cisco isn’t going to get all the market, they better have a place at that table and be more focused than they have been.”

IDC Canada analyst Lawrence Surtees said Zafirovski’s track record at Motorola doesn’t guarantee a repeat performance at Nortel.

“The guy’s business strengths and acumen would have to transcend that particular niche (in PCS handsets) to bring value to Nortel,” he said. “Nortel is much more multi-faceted and complex and has its own structural challenges following recent events.”

Zafirovski said he has no plans to move Nortel’s headquarters to the United States and that he was in the process of reading A Short History of Canada to learn more about the country. He said he was drawn to Nortel by its similarities to his two previous employers.

“It has a history of innovation in the right policies, the right practices. There is the same sense of an iconic past, global footprint – we operate in more than 150 countries. Customers want this company not only to survive, but to come back to prosperity.”

Surtees said Zafirovski is faced with the challenge of how to motivate and retain the people who will be the intellectual engine of Nortel’s future growth. Constant restructurings and the company’s accounting scandal have made that more difficult, he added.

“This is a company where every single employee who’s there right now has had to live through not one but repeated episodes of this. It goes beyond morale. These people have to go in each day wondering when are they going to be next?”

Nortel chairman Harry Pearce acknowledged the strain Nortel employees, customers and shareholders have been through in his praise of Owen’s performance.

“I can assure you no one was lining up for that job. This company was in serious trouble on all fronts,” he said.

Grant agreed. “Owens has done a fabulous job in regaining the confidence of the financial community to give a sense that when Nortel says a number, it actually knows what it means,” he said. “The task going forward is different, it’s to build now.”

“He definitely brought some discipline and I think integrity to the role at an absolutely critical juncture,” Surtees added. “They had to have an outside person and someone who could rise above the fray.”

Zafirovski lost the top job at Motorola to Ed Zander, the former No. 2 at Sun Microsystems. He comes to Nortel not long after two top operational executives quit unexpectedly, and said he has no plans to hire a COO.

“It’s virtually impossible to separate execution from strategy,” he said.

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