Is This Nortel's Year?

Help in driving market-share gains should come from the Innovative Communications Alliance (ICA) Nortel formed with Microsoft last summer to bring joint unified communications solutions to market. That deal is expected to add $1 billion in new revenue to Nortel's coffers through 2009 from product sales and services, and the channel is a key part of the plan.

"The future for our customers is integrating the desktop with the network with the applications, and if our channel partners can't do that, they'll never be able to meet the needs of these transforming enterprises," said Dion Joannou, president of Nortel's North American business. "So we're working very hard with them and with Microsoft to get them trained, to make sure they understand the road map and to link them up with Microsoft partners as well so we have an ecosystem."

The first offerings from ICA are scheduled for availability this year, starting with the CS 1000 integration with Microsoft's wares, followed by other rollouts in the fourth quarter.

Nortel partners and the industry are anxiously awaiting the release of these products to find out just how real the partnership is and how big of a threat it will be to Cisco and Avaya.

"It remains to be seen how serious Microsoft really is or how long Nortel will be the Microsoft favorite," said Robert Keblusek, senior vice president of business development at Sentinel Technologies, a Cisco and Microsoft partner in Downers Grove, Ill. The Microsoft partnership could be a game-changer for Nortel, but Cisco still has an advantage because of its vast experience in the IP space and the integration of its communications products with its routers and switches, he said.

Partners will also see new products this year stemming from a 25 percent increase in R&D spending from 2005 to 2006 and a shift of almost $100 million in R&D funds from the carrier side to the enterprise side of the house, Joannou said. Products from Nortel's joint venture with Korea-based LG Electronics will also hit the North American market this year, including low-end key systems, video phones, SIP phones and in-home WiMAX products, he said.

With Nortel's channel and product pieces seemingly falling into place, Zafirovski is also turning attention to the vendor's service business, which now accounts for 20 percent of the company's roughly $11 billion in sales. "We want to double that as a percentage of revenue over the next three to five years."

The plan raises the specter of channel conflict, but Zafirovski said Nortel's services will be largely complementary to what its solution providers are offering.

He's also still working to settle down Nortel's financial house, which is still not entirely in order. The company last week said it will issue another restatement of earnings and delay the filing of its 2006 annual report. In February the company said it will cut 2,900 jobs throughout the next two years and will shift 1,000 positions to lower-cost locations. That disclosure came one day after the company said Executive Vice President and CFO Peter Currie will step down at the end of April.

Nortel partners said they are unfazed by the departure and just want Zafirovski to continue on the path he has laid out.

"It has come across for the customers that he's doing good things, but speed up. Don't waste time," said Kobuszewski. "The window is continuing to close, and Cisco knows that." So does Mike Z.