Nortel Networks Corp - Focus On The Internet

When CEO John A. Roth took the reins of Nortel in 1997, the firm "was in danger of being eclipsed by fleet-footed rivals serving up Net gear," wrote BusinessWeek Online columnist Joseph Weber. Recognizing this, Roth began working to transform the telecommunications equipment giant into a maker of cutting edge Internet equipment. Nortel launched an acquisition spree in 1998, buying Broadband Networks Inc., Aptis Communications, Inc., and Cambrian Systems Corp. The firm also completed its largest deal to date, paying $6.9 billion for Bay Networks, Inc., the world's third largest data and Internet networking equipment vendor. According to Weber, "Bay brought Nortel top-notch technology, setting it up to compete in a brave new world where phone and data networks are fast converging."

In the late 1990s, Nortel began to release several Internet-based products. For example, the Meg-1 modem allowed telephone companies to offer high-speed Internet access to consumers. The firm's Succession system combined traditional telephone equipment with Internet gear, appealing to clients wanting to gradually increase their Internet capabilities. E-commerce products and services included online configuration, as well as ordering and support. In 1999, Nortel added Shasta Networks, Inc., X-CEL Communications, Ltd., and Periphonics Corp. to its holdings. The firm also paid $2.1 billion for Clarify Inc., a customer relationship management software manufacturer. In an effort to boost electronic sales of its products and services, Nortel revamped its Web site. That year, Sweden's national telephone company, Telia, hired Nortel over rival Cisco Systems Inc. to develop Internet-based voice and data equipment for a national network. Similarly, Nortel beat out Lucent Technologies Inc. to supply equipment for a fiber network Jazz Telecom Inc. was erecting in Spain. Purchases continued into 2000 with the acquisition of Dimension Enterprises, Inc., an engineering and business strategy consulting firm; Australian-based Photonic Technologies; Xros, Inc., a switching concern; and CoreTek, Inc., an optical components firm. The $7.8 billion purchase of Alteon WebSystems brought with it the Web switching equipment many analysts predicted would be in great demand. In May of that year, Bell Telephone sold off its remaining 35 percent stake in Nortel to a newly formed holding company, Nortel Networks Corp.

STMicroelectronics paid $100 million for Nortel's semiconductor manufacturing operations in 2001. Nortel revealed plans to increase its European workforce by 10 percent, creating 2,000 high-technology jobs, primarily in the U.K., Ireland, France, Germany, Italy, and Spain. However, when telecommunications spending slowed drastically later that year, the firm actually began cutting jobs. The inventory Nortel had been building in anticipation of increased growth suddenly became a major liability. In the second quarter of 2001, Nortel posted a $19.2 billion loss as it wrote off billions of dollars in excess inventory. The number of layoffs eventually reached 30,000, and Nortel began selling off non-core units, such as its Access Solutions high-speed Internet access products. Like most other telecommunications firms, Nortel planned to outlast the industry downturn, which was predicted to continue well into 2002.