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Apologetic Owens warns of more Nortel cost cuts

Posted: 01 Jul 2005 ?? ?Print Version ?Bookmark and Share


Nortel Networks Inc. chief executive Bill Owens offered a public apology to shareholders at the company's delayed annual meeting last week.

Owens, a former vice chairman of the U.S. Joint Chiefs of Staff, has been under increasing pressure since the sudden resignation of two executives, COO Gary Daichendt and CTO Gary Kunis, in mid-June.

Close to 700 people attended the marathon seven-hour meeting during which Owens pledged to reduce operating expenses from current 35 percent to a targeted 30 percent of revenue by the end of 2005. Shareholders complained about Nortel's declining share price, currently at $2.68 per share on the New York Stock Exchange.

After one shareholder asked at the contentious meeting when any member of Nortel's 1998-2001 executive team might be charged and tried for financial improprieties, another questioned whether Owens was the proper post-crash leader for Nortel. Daichendt and Kunis had lengthy careers at Cisco Systems Inc., and left Nortel citing management-style differences with Owens. Shareholders asked if Owens was too abrasive to provide badly needed unity.

Owens told an analysts' conference call following the meeting that the company must "make the right choices in a consolidating industry" by retaining R&D leadership while cutting most in-house manufacturing and engineering for telecom equipment. Additional cuts will be needed, including reducing the size of the Brampton, Ontario, headquarters.

"R&D cuts were not made in an across-the-board way," Owens said. "They were made in legacy systems, and in product areas where markets were very reduced, such as optical transport."

"Our goal is to over-deliver and under-promise," he said. Owens said Nortel made the right decision to outsource most manufacturing and a large percentage of engineering to Flextronics, since the latter company was now an "integrated part of the Nortel supply chain."

Nortel announced the appointment of Harry Pearce, former chairman of Hughes Electronics Corp., as its board chairman, replacing the retiring board chairman, Lynton Wilson, who had held that position since November 2001. Pearce, who joined the Nortel board in January, expressed confidence in Owens's leadership.

Owens has driven Nortel more directly into government accounts, a trend followed by many in the telecom equipment market, including Cisco, Ciena Corp. and Avici Systems Inc. Nortel's new PEC Solutions subsidiary announced a contract Tuesday (June 28) to upgrade the NASA Mission Command and Telemetry Network, which links the Space Shuttle network, International Space Station and NASA operation centers.

- Loring Wirbel

EE Times

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