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Nortel’s Demise January 15, 2009

Posted by Andre Vellino in Collaborative filtering.
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nortelI worked for Nortel (Bell Northern Research) for 13 years. At least 6 of these years rank among the best in my career (actually, my work right now ranks as the best, and I’m not just saying that because my employer might be reading my blog).  The BNR Computing Research Lab had an amazing bunch of bright people – it was a real privilege to work with them.  You’d hear the same testimonials about the BNR design group “Design Interpretive”.

So everyone is mourning Nortel’s demise into bankrupcy and offering post-mortem explanations. Here’s mine: the beginning of the end was BCE’s divestiture of Nortel on Jan. 26 2000, which was the culmination of John Roth’s “internet gamble” (viz. Nortel’s acquisition of the IP router company Bay Networks).

At the time, this move by BCE-  to dump its remaining 38% ownership of Nortel onto the stock market – was touted as desirable both for Nortel and BCE.  Nortel was to unteather itself from the schackles of a bureaucratic, stodgy telephone operating company, to be nimble and agile as “internet companies” need to be….  

But it was pretty clear, even at that time, that this pact with Wall Street was a pact with the devil. No doubt there were significant rewards for senior managers and executives who were big shareholders, but at the cost of slavery to the quartely bottom line and hence to the ability to plan and execute for the long term.

If BCE had remained the princpal shareholder for Nortel, I think it wouldn’t have experienced the tsunami of the dot-com bubble-burst and also (probably) wouldn’t be suffering from the consequences of subsequent accounting scandals.

Comments»

1. gawp - January 18, 2009

Good analysis, I think that’s pretty much it. There’s a book to be written on this, I bet a few insiders are shopping for publishers as I write this. I’ve heard some wild anecdotes of stuff that was going on before the accounting scandals broke.
Michelle put it rather nicely when she said “They stopped making things and started making money.”

2. Andre Vellino - January 18, 2009

Thanks Gareth.

I think the core bit of hubris on John Roth’s part was this idea of transforming Nortel into an “internet company”. Paying 9.1 billion $ for Bay Networks was (a) much too expensive and (b) the wrong company to acquire. A Cisco – Nortel “merger” might have worked, who knows, but the acquisition that happened didn’t make either company better or more competitive or more innovative…. Sigh.

3. gawp - January 18, 2009

I remember the internet company thing, particularly the tragic “I speak IP” slogan (implying incontinence on the part of the speaker), and the dot-commie companies they were buying whose revenue didn’t seem to warrant their price.
The erasure of the last traces of BNR (CRL and Design Interpretive) was a direct consequence of the BCE divestiture you mention, but so symbolic of the company destroying itself, extinguishing its own creative heart.
So many people built that company over the years, I’m very sad to see it dissolve. I was hoping my daughter would work there at some point so she could say “I worked at Nortel and my father did, and my fathers father too”.

So it goes.

4. David Fly - November 23, 2010

As a former Bay Networks guy, I can tell you we were as equally dismayed re:”The Purchase” as anybody. When the Phone Giant insisted we stop shipping products, I wondered aloud to many if Roth was planning to engrave the silver platter full of market share before presenting it to John Chambers and the Cisco-ites. We went from going toe-to-toe all the way to zip, nada, just barely holding on to our oldest customers. Pathetic.


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