CEO Owens Bullish About Nortel's Future

Nortel Networks President and CEO Bill Owens this week sat down with a group of journalists, including CRN Infrastructure Editor Jennifer Hagendorf Follett, at the company's Billerica, Mass.-based research and development facility, to discuss the company's future in the wake of what he dubbed Nortel's "roller coaster ride." The powwow took place approximately two weeks after the Brampton, Ontario-based company announced a 10 percent staff reduction, a reorganization that consolidated its businesses down to two units and the firing of seven financial executives as part of an internal review of its past accounting practices. Despite the turmoil, Owens looked ahead with confidence, touting the strength of the company's R&D efforts, its strong ties to the carrier world and its growing enterprise business, where much of the company's channel efforts lie.

Owens, who at one time was vice chairman of the U.S. Joint Chiefs of Staff, served as a Nortel director for two years before taking on his current role in April. An excerpt of the discussion follows:

Q: What's your assessment of Nortel's channel strategy at this point?

Owens: Well, Nortel has, on the carrier side, these remarkable relationships around the world with most of the large telecom companies so those are great channels to help with the marketing and sales of products that really matter to those large telecom companies. Now many of them are interested in enterprise solutions as well because they have their own enterprise business. If you look at the world out there, you have to ask yourself, in the world of technology [is there any channel stronger than Nortel's] relationships that have been built over many decades of interface with these various carrier [partners]?

The channel strategies that are being built with enterprises, as you know there are thousands of enterprises, so it is more challenging for us to be able to go and exercise those channels. You have to build them yourself, you have to build the confidence and reliability in those networks, and that is something that takes a long time, and we are doing extremely well with that. The enterprise business is good. We think that the services business is important there too, to be able to offer [to] enterprise networks because they are complex. They are, in a growing way, mandating five-nines reliability and security in their own networks, and here is an area where we have a great opportunity through channels that we've already developed to deliver these solutions to the enterprise.

Government is [also] an extremely important element of our enterpriselike business. The channels for that business deal with primarily systems integrators: EDS, KMPG, Accenture, SAIC, CSC, etc. We have good partnerships with several of those, and I know quite a lot about that marketplace, having banged my head against it for 30 years. So that is a really important marketplace. It's a marketplace we can do better with.

Q: Are you increasing your investment in the channel, particularly as you try to grow that enterprise business?

Owens: Yes, we are, and you'll find us putting more time and attention into the enterprise business and partners, and I think over the next year you'll see announcements relating to this.

Q: How do you feel enterprise spending will go in the next half of the year?

Owens: It feels to me, both in the enterprise and the carrier space, there is an increase in spending over last year. The cap ex of the carriers and the enterprise is likely to go up. We have said overall in our marketplace that we expect the marketplace to go up, and I think this is about the same for enterprise and carriers, in low to midsingle-digit percentages, and that's the way it feels to me. But at the same time I would tell you the competition is pretty stiff in terms of driving those margins.

Q: So that creates pricing pressure for you guys?

Owens: It creates pricing pressures, but I think one of the other things we're seeing is that it is true that in countries where there isn't a strong infrastructure, where there isn't a lot of copper or fiber, there's a natural tendency to install large and important wireless networks. Some of those locations, some of those countries, these are very competitive bids, but you [want to] be there for the future. So you'll see a pressure on margins from that, but it means you are looking for a strategic future of being out there in these countries, and so we're experiencing that and we are doing fine.

Q: When you meet with the enterprise customers, what are they asking you, what are they concerned about and how concerned are they about your reorganization?

Owens: In my experience with them, they are not particularly concerned, given that we are putting a lot of attention to enterprise and we are looking to bulk it up. We are looking for strategic ways to do that. We are maintaining our R&D expenditure in enterprise in a substantial way, and we take this as a very serious part of Nortel.

Q: On the enterprise R&D side, where is the majority of your money being spent? What technology area?

Owens: There are a lot of products associated with voice-over-IP and how that works inside the network. We do have some terrific security products [such as] Contivity, which is one of them that came out of Billerica, I think, here. We're doing a lot of the more advanced areas of security in the enterprise business, some of the deep packet inspection of the Internet is being done inside the enterprise business, so those are a few. We have some important steps to go through here over the next few months, but I'm confident that we're going to do that and that Nortel will come out of this and we're bound and determined to make that happen successfully.