LAS VEGAS—Nortel Networks, with its troubled past behind it, has embarked on a mission to reassert its role as Cisco Systems foil in the enterprise network market. In 2006, Nortel revenues in the enterprise were up 34 percent, according to CEO Mike Zafirovski, who sat down at Interop with eWEEK Senior Editor Paula Musich to talk about Nortels quest to regain its status. The week of May 14, the company launched its new Hyperconnectivity marketing campaign on top of a bevy of new enterprise-oriented products.
You said in your keynote that Nortel is gaining back growth in the enterprise. How far did Nortel fall and where is it now in climbing back to become a significant challenger to Cisco?
Weve been flat or losing market share for four or five years, minimum, in the enterprise space. I think that stopped and started going the other way in the third quarter of last year. Right now this is a food fight for whos No.2 [in the enterprise networking market]. Theres no clear No. 2 right now.
You said in your keynote that Nortels enterprise networking revenue grew 34 percent over the last year. What qualitative proof points demonstrate Nortels growth there?
[Nortel won deals with] Rolls-Royce, Shell Oil, the Louisiana Superdome. Verizon and [British Telecom] are large partners. We had a nice win with Wal-Mart last year. Kodak just signed in a significant way, and were growing again with FedEx.
We created within Nortel a business transformation project with 200 people working full-time on it. We looked at how many sales people we had, how much theyre covering, and were able to serve global customers by region, what our track record for new product introductions was, whether our direct versus indirect sales mix was appropriate, whether our R&D [funding] was appropriate.
Late in the second quarter we increased R&D spending from $300 [million] to $400 million a year, increased the sales force, [and] we created a global account structure. Steve Slattery, who became president of our enterprise unit, has a terrific track record of meeting due dates. Hes producing benefits.
Were working with systems integrators in a more comprehensive approach. We made it simpler for SMBs [small and midsize businesses] to upgrade from a PBX to VOIP [voice over IP] through our IPT 1-2-3 program [launched] last July. And [the Microsoft Innovative Communications Alliance] opened doors for us in a profound way.
Each of those is material in its own way. We are doing a better job with legacy customers and are being more forthright in telling customers what we believe is good for them. And now the new marketing campaign kicked off last week.
Some believe that Nortel, in its relationship with Microsoft, has given away precious intellectual property on a bet that Nortel can grow to become a significant services provider. Whats your response to that?
Next Page: Nortels return to relevance.
Nortels Return to Relevance
We think we can become a very significant professional services organization to go to Unified Communications and broaden [Microsofts] communication-enabled applications. Being aligned with Microsoft will help in a significant way. Unified Communications is coming very fast. People want to make investments today and we can give them confidence that they can invest now in VOIP. And there will be many other applications. [IVR (Interactive Voice Response)] is becoming more and of a request, and [customers] want services [for it].
Its extremely difficult to grow a services business to become a major presence, and it takes a lot of time to do that. Where do you believe Nortel is at in that effort and what milestones have you set out for Nortels progress in becoming a significant professional services provider?
We want to be a thought leader, provide Unified Communications and provide SIP [Session Initiation Protocol] applications. We can really accomplish that with our innovation. In the carrier space, we have a strong base with next-generation convergence. If we execute we could be a significant player. Services and solutions is not a big percentage of the market. We dont want to be the next IBM. We have a great services organization. Weve been more reactive when asked by customers, as opposed to marketing to them. We do believe that by simply communicating with existing customers, we will be able to increase our penetration significantly. We think we can take a $2 billion business and double it in the next three or four years.
To quote Bob Metcalfe, partnering with Microsoft is like mating with a black widow spider. How will Nortel ensure that it gets the most out of its partnership with Microsoft, rather than Microsoft getting the best of Nortel Networks?
They have lots of respect for commercially minded companies. Nortel is becoming one of those. Unless we add significant value, no partnership will last forever. We are going from being a very irrelevant player in the hardware business to one thats becoming very relevant. We bring significant value to Microsoft. Doors are being opened. The work we did together on the secure router was fantastic. To have however many sales people Microsoft has selling our combined solution is pretty important. We provide lots of value to Microsoft, but its far from being a one-way relationship. So far weve both gotten meaningful value from each other.