Nortels New CEO Has His Work Cut Out
Revenue is falling faster than maple leaves at Nortel Networks, as Frank Dunn prepares to succeed John Roth as CEO of an equipment company that will be 50,000 people fewer and $3.8 billion shorter than it was at the beginning of the year.
Dunn, 47, named Tuesday to succeed Roth, earned $1.5 million in salary last year as Nortels chief financial officer. Dunn inherits a company that this week said it expected a third-quarter loss of $3.6 billion, or $1.13 a share. Nortel projected that it will take in revenue of $3.5 billion, less than half the $7.3 billion in sales it garnered in the quarter a year ago. It also said it is increasing its job reductions by about 20,000, which would leave it with about 45,000 employees.
Roth, 58, announced his retirement in June. His expected successor, Clarence Chandran, was forced to pull out of the running; Chandran continues to suffer health problems after having been attacked and stabbed in Singapore.
Nortel is suffering from a sharp downturn in spending by carriers for its equipment, which enables the movement of voice and data traffic.
The Brampton, Ontario, companys ability to turn around hinges on the goodwill it has built up over the years as the globes top supplier of circuit switches and, later, optical equipment to the top incumbent carriers.
Roth recently acknowledged that he misread the downturn because he was listening to his customers engineers, who said they wanted more new technology, and not to his customers treasurers, who could have warned him that the capital spigot was being turned off.
Now, Nortel gets a CEO with a finger on the pulse of the financial community.
Analysts say Nortel hasnt kept up with younger companies in offering a platform that lets carriers keep one foot in the traditional world of circuit switching and Asynchronous Transfer Mode Technology, while migrating to the new world of IP and gigabit Ethernet at their own pace. Seeing the decline in circuit-switching equipment sales, Nortel jumped with both feet into IP switching, failing to see that carriers werent ready to follow quite that fast.
Nortel exited the DSL business in May and in the past several months has sold or closed several business units to raise cash. This week, Amdocs agreed to acquire Nortels Clarify customer relationship management unit for $200 million.
Analysts had predicted Nortel would look for an outsider to succeed Roth. But Nortel Chairman Lynton R. Wilson pointed to the "deep and protracted correction" as the reason it turned to Dunn. Nortel needed Dunns "management skills, industrial experience and business credentials," he said.