Nortel hits the skids
Om has a piece today written by Venture Capitalist Allan Leinwand asking whether Canada should bail out Nortel. He asks: “But is preserving the country’s technological heritage reason enough to spend millions in taxpayers dollars?”
I think that the answer to the question is contained within the question. There is no such thing as technological heritage … only a technology’s future. Once a company has ceased to innovate with effectiveness, market forces must be allowed to run their course.
Nortel, whose turnaround CEO Mike Zafirovsky appears to be a bit of a jet-setter, was a global source of technical innovation for most of the last century, peaking in the 1980s. Its DMS line of switches grew to become the dominant means by which incumbent local exchange carriers rolled out circuit-switched voice networks; and the means by which long-distance companies expanded their reach globally.
This gave the company a lot of cash to throw around, chasing R&D with aplomb, but it wasn’t spent wisely and efforts to embrace IP were insincere and too little too late. What Nortel failed to see coming was the enormous destruction of value that would occur when Voice became just another application on IP networks — and the opportunity to build massively expanded value by building new applications over that infrastructure. Even as recently as a few years ago Nortel has been tremendously innovative, however their solutions have failed to reach into the marketplace as they were targeted at a single customer group — the incumbents — who themselves are flailing and sputtering.
They also have a broken corporate culture. This happens when organizations get fat and lazy … and political. I watched that culture attach itself, like a parasite, to Cisco in the late 1990s as we were hiring entire teams from Nortel and moving them to North Carolina and San Jose.
The issue of a bailout should be (but isn’t, since the Canadian taxpayer is already subsidizing the company’s operations to the tune of $30M) irrelevant: Nortel has strong market and asset value still and should not need it. The company suffers from the burden of expectations, both of the marketplace and of irrational shareholders; and from the criminal efforts of loathsome executives who tried to feed that beast rather than confront reality.
When AOL’s executives realized they had an overvalued asset with little-to-no real growth prospects, they limpet-mined themselves onto a depressed company with unrealized value. That’s what Nortel could have / should have done several times in the past 15 years, but didn’t.
The chalice of innovation in telecommunications in Canada has passed on to RIM (neither of whose founders ever worked for Nortel — a rarity in the technology industry in Canada!). Is the company wobbling simply as a casualty of the current economic cycle, or because of a deeper cancer and an endless stream of financial scandals? Would $30M in investment be better spent on Nortel or on RIM, in the long term?
My guidance is: embrace the bankruptcy. It’s an opportunity to restructure the business, re-orient the strategy, clear out the dead wood, and reset irrational expectations. Nortel could yet again be an invigorating business, but shoring up the business that it is today is no way to get there. In the meantime, Nortel has served its purpose in stimulating innovation in Canada and acting as an apprenticeship program for our country’s technology leaders. Let it run its natural course.
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It’s ridiculous to say the govt should let NORTEL go. This one of Canada’s biggest company that has provided telephone and electronics service to canadians, and others worldwide, for years. This company has employed 10s of 1,000 of canadians and others around the world.
With all that said, the canadian govt has to bailout NORTEL. Definitely, with all the mismanagement scandals with this company, the money granted must be under strict requirements and conditions, with re-structuring plan that must be met.
However, to say the govt must let NORTEL go is being irresponsible. The govt needs workers to keep their jobs at NORTEL and for canadian consumers to keep buying NORTEL products. It’s about time the canadian govt starts helping NORTEL already.
This whole bailout mindset makes me sick. All we’ve done the past 8 years is spend and spend, and look where we are. Why do we think spending even more will make things better? Also, do we really want to reward companies for failing? Because that is basically what it is. People are learning that if your company fails, then the government will be there to pick it up. It is the same mentality as welfare was in the 90’s. And we all know that went too far and had to be ended. Are we going to have to face an economic collapse in order for people to realize welfare for companies is not what we need?
I may be biased, as I worked for Cisco Systems in California, but Nortel needs to be completely broken before it can be fixed.
While I grew up in Ottawa’s high tech scene (where Nortel has a huge presence), Nortel was never seen as leading-edge or innovative. In fact is was a laggard, relying on old processes and technology and selling them to customers who didn’t know any better or would blindly buy ‘Canadian’.
Just like GM, it needs to completely fail and die as all dinosaurs need to do. This will then create new opportunity in the void left behind. The smart people at Nortel will go out and be forced to build new innovation in new ventures.
amen! another great post! let nortel go! embrace startups! etc. !