Nortel vs. the dirty last mile

It was a good news/bad news kinda quarter for Nortel Networks shareholders.

The good news is that fourth quarter results for the network equipment manufacturer came in ahead of expectations announced in a December earnings warning. The bad news is that they were still abysmal — a loss

of almost $2 billion for the quarter, bringing the annual tab to $27 billion. That loss is almost equal to the company’s revenues for 2000, and far outstrips the $17.5 billion in revenue for 2001. A British online newspaper called the results “more depressing than a Leonard Cohen song.”

Should we stop referring to the company as “the networking equipment giant”?

The sources of woe for Nortel are well documented. CLECs were dropping like flies in 2001. Likewise dot-coms. Some say Nortel contributed to its own troubles with sweetheart financing deals for customers that plugged the inventory pipeline. Customers had stockpiles of Nortel boxes and weren’t buying more. And IT spending in general was in decline. Reality cramps set in.

Nortel wasn’t alone. Cisco Systems slashed 5,000 jobs and lost $1 billion. Lucent, having already survived one miserable year, took it on the chin to the tune of almost $5 billion (its fiscal year ended in October). Those numbers look like pocket change only when you compare them to Nortel’s performance.

When does it get better for Nortel? Dot-com and CLEC demand aren’t coming back soon. Companies are addressing IT spends warily. The company has already shed about half its workforce, canning 50,000 last year.

Analysts are expressing cautious optimism about the telco equipment market in the mid-term, and some have even said that this is the bottom. But capacity has outstripped demand in the last decade, and there’s still a heap of unlit fibre in the backbone. Nortel needs new markets.

It might have to create the demand for it equipment itself.

Sure, there’s overcapacity in the backbone. Yet there’s still unsupplied demand for broadband at the user end in North America. It’s that dirty last-mile job that nobody seems to want to do.

Nortel’s not in that game, nor would it be wise for the company to jump into it — one of the few business mantras of the 1990s that is worth keeping is “stick to your core competencies.” But if that’s where the market is, that’s where Nortel has to go to goose demand. Nortel the CLEC? Bad idea. But Nortel, owner or partner of the folks who bring you the last mile? Maybe.

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Jim Love, Chief Content Officer, IT World Canada

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Dave Webb
Dave Webb
Dave Webb is a technology journalist with more than 15 years' experience. He has edited numerous technology publications including Network World Canada, ComputerWorld Canada, Computing Canada and eBusiness Journal. He now runs content development shop Dweeb Media.

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