Nortel fades to black

As Nortel Networks tries to claw its way out of the red and into the black, the company appears set for a journey that will see it play a less prominent - if no less important - role in IT systems of the future. That's the impression the company's executives gave during media and analyst presentations at Global Connect 2007, the International Nortel Network Users Association's (INNUA) conference held in Tampa FL this week. Although the Toronto-based communication equipment maker aims to be a pivotal part of enterprise IT infrastructure, it also seems to be pulling back from the spotlightInstead of centre stage, Nortel is taking a supporting role as the engine for business communication driving customer-facing applications such as Microsoft Corp.'s Office Communicator and IBM Corp.'s Notes and Sametime.Nortel accepts certain inevitabilities, judging by the words of Paul Templeton, head of enterprise and IP products. "Sometimes people will want to use Microsoft or IBM software" to access communication services, he said.Division trendThis is part and parcel of the divisions occurring all over the network industry: phone calls, voice mail features, conferencing capabilities and other traditional voice functions are being pulled out of the PBX and mixed into the IT environment, hosted on data servers, and presented through word processing, email and spreadsheet applications on the computer.In Nortel's estimation, this is the way of the future: network vendors will integrate their equipment into other computing platforms, such as IBM's System i - Nortel announced the very thing earlier this week, a Big Blue server containing IP-PBX functions courtesy of Nortel. (See "Nortel hopes Sametime means fame time").It's an aspect of Nortel's new understanding of the market: communication vendors must link into other vendors' systems in order to provide rich connectivity. "We know we can't do this alone," said Wes Durow, VP of marketing, enterprise solutions.That concern about solitude explains Nortel's deepening relationship with Microsoft. The firms announced their joint Innovative Communications Alliance (ICA) last summer. According to Ruchi Prasad, the ICA's VP and GM on Nortel's side, the alliance has helped both companies sell converged Nortel-Microsoft communication systems to many enterprises. In the coming year, functions from Nortel's CS1000 IP-PBX will infuse Microsoft's Office Communications Server (OCS) with advanced calling features, such as bridging for conferences, after the Microsoft product ships later this year.Nortel has been batting questions about the ICA - and its entire partnership strategy - for months. Industry observers wonder if the Microsoft relationship effectively reduces Nortel's clout, turning the firm into little more than an application provider for other software providers' business platforms."That's absolutely not the case," said Templeton. He explained that even though Nortel's functionality may be increasingly integrated with other companies' software, the Canadian player's wares are no less powerful."How many times have people said the PBX is dead over the past 20 years?" Templeton said, noting that the box known as the PBX might be disappearing, but the signalling, call setups and teardowns it performs remain integral to end users' communications experiences.UC 1-2-3"Relevance" seems to be Nortel's new focus - whether born of IBM or Microsoft, or driven from within Nortel itself, the company seems bent on becoming the de facto motor behind electronic communications. To that end, the firm has unveiled the latest iteration of its "1-2-3" product-marketing programs: UC 1-2-3. According to Net Payne, VP of North American marketing, this program presents prospective Nortel customers with pre-selected voice and data packages so they're easy to chose from, and clients aren't overwhelmed by the array of switches, routers, IP-PBXs and features that result from Nortel's vast product portfolio.UC 1-2-3 follows IPT 1-2-3, which was launched last year. The new version adds easy integration with Microsoft communication components, and lays the groundwork for multimedia applications, Payne said.He described how UC 1-2-3 fixes some of the mistakes Nortel made with IPT. For example, IPT had just four packages. Resellers and customers told Nortel to provide more flexibility, so now there are 20 packages.At the same time, Nortel had to simplify the sales process for resellers, so they don't get bogged down in time-consuming details. The firm automated some of the functions in the quote-building software for resellers to speed up the sales process, Payne said.The 1-2-3 strategy seems to be having a positive effect. Payne said the program has helped resellers increase Nortel's share of the IP voice-system market. And overall, Nortel's enterprise division is performing much better than it has in the past. "It's frankly rocking right now," Templeton said.In the first quarter of 2007 - reported in May - Nortel lost US$103 million, an improvement over the US$171 million loss in Q1 2006, but slightly worse than the US$80 million loss in the fourth quarter. The enterprise solutions unit in Q1 2007 increased 31% year over year to US$597 million.Last month the Ontario Exchange Commission (OSC) settled with Nortel for a relatively small amount - $1 million - over accounting irregularities. But now reports say the US Securities Exchange Commission (SEC) is preparing to fine Nortel up to US$100 million for inflating its earnings in the past.It's one step forward and one step back for this company. Will Nortel ever manage positive momentum? The market won't help. There's the ever-present Cisco Systems Inc., which has carved out a substantial piece of the IP voice sector to complement the massive chunk of the data space that the San Jose CA company already commands. Meanwhile competitors such as Mitel Networks Corp. and Avaya Inc. are building financial ties that could make them stronger players (see "Mitel, Avaya moves...").And everyone's getting close to IT vendors like Microsoft and IBM, as if the whole network equipment community has decided its prospects reside with integration strategies instead of stand-alone bravado.Nortel will have to differentiate itself as the communication engine of choice in this new regime. "The strategy is to continue to provide best-of-breed applications," Templeton said, indicating that his company may well step back, but it certainly won't disappear.

Nortel fades to black

News | 06/13/2007 12:28 pm EDT

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