Partners to Nortel: Grow up!

As Nortel considers bankruptcy, partners demand the company reorganize into an enterprise-focused machine.

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Nortel partners -- typically an ultra-loyal bunch -- are demanding that Nortel grow up, shed unnecessary units and claim one solid identity to survive.

It's no secret that Nortel is in deep trouble. This week, Moody's downgraded Nortel even further into junk status and last week the company received a warning that it could be booted from the New York Stock Exchange (NYSE). Nortel's shares have traded at less than a buck for well over a month. Wednesday they traded at an all-time low of 31 cents.

"I think Nortel may do well to do one of two things: either consolidate with another company or sell off some business units," said Stuart Chandler, president and CEO of Optivor Technologies LLC in Jessup, Md.

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On the bright side, Nortel has a lot to live for: namely an installed base of 200 million equipped lines, great intellectual property and a loyal partner community, Chandler said. But the company needs to "simplify" and "shed" products that are not core.

"They need one 12-port non-POE [power over Ethernet] switch for the SMB [small and medium-sized business] space, one 24-port POE and a 24-port non-POE, and they need one [switch] for Gigabit Ethernet and one for non-gig. They need four types of 24- and four types of 48-port. They don't need 25 different [products]," Chandler said.

Nortel could also stand to drop its security focus, he said.

"What the heck do they know about IPS [intrusion prevention systems]? They need a VPN, so they should let that stay, but they need to trim R&D and stop putting money into security," Chandler said. "As a business operator, I want to sell Nortel, but if Nortel doesn't make immediate changes, I think Nortel is going to fail."

While Nortel has a strong carrier business, some partners say that unit is the boondoggle.

"They should sell the carrier division and put their money into what's profitable, and that's enterprise," said John Wrona, executive vice president of sales and marketing at Nortel partner Ronco Communications and Electronics Inc. in Tonawanda, N.Y. "The other alternative is somebody bigger, like IBM or Microsoft or Siemens, could buy the enterprise part for the account control."

Although it has been reported that Nortel has sought counsel to consider filing for bankruptcy protection, it still has enough cash available to stay afloat with a new and focused strategy. The company has $2.6 billion in cash and no debt until 2011, but the company also faces a drop in demand.

"Unfortunately, whether Nortel likes it or not, when it comes to large enterprise deals, Nortel is not making the cut right now because of their financial position," Wrona said. "Whenever you go below a dollar, it makes a lot of large enterprise customers say, 'we can't take them seriously.'"

Nortel has been criticized for years for a lack of identity. Aware of that problem, Nortel set out a couple of years ago to make changes. The company dropped the "Networks" from its name and began to market its applications as much as its equipment. That actually made some headway since its unified communications play brought partnerships with Microsoft and IBM.

But that move also confused those in the market who saw Nortel as the best voice game in town, so the vendor is struggling to hold its place in the enterprise voice space. Although Nortel has a mean IP PBX product, a recent Infonetics Research report shows it coming in at number three in enterprise telephony -- with Cisco Systems Inc. in the top spot and Avaya Inc. coming in second.

"Who is Nortel and what do they do? What's their core competency?" asked Mike Baker, a founding partner of Torrey Point Group, a networking integration and services partner that does some business with Nortel, but mostly with Juniper Networks Inc. and Cisco.

Many of the networking companies have been tempted to be too many things to too many people -- with Cisco leading the pack. And although Cisco is doing well in many markets outside of switches and routers, Baker stressed that Cisco has gone as far as selling furniture for telepresence rooms, a move he thinks will eventually backfire. Nortel, of course, has been trying to keep up with Cisco in diversifying from core network products and services.

"There are only a couple of companies that had the intelligence not to do that," Baker said. "Alcatel-Lucent said we're layer three and below. How did that work out for them? They're still a dominant transport company. Juniper lost their way for a while -- but now they seem to have realized."

Juniper has focused in on its carrier and enterprise data business pretty closely without straying into tons of its own applications.

Although partners all call for change, they're also well aware that Nortel could shutter for good, and they say they are prepared.

"There are two outcomes: Either they succeed or fail. If they fail, then the partners are going to switch over to the next game. If they succeed, the partners are going to stay there," Chandler said.

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