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Nortel CEO: Industry Consolidation Afoot

BILLERICA, Mass. -- Bill Owens is no stranger to challenges. Before his telecom career, which currently has him heading Nortel Networks , he was a Navy admiral who served as vice chairman of the U.S. Joint Chiefs of Staff and commanded the Sixth Fleet during Operation Desert Storm.

In April, Owens stepped into a crisis situation when he took the helm of Nortel, replacing former CEO Frank Dunn who had just been ousted amid a burgeoning accounting scandal.

Not only had the company's reputation been tarnished, but the criminal investigations and shareholder lawsuits that followed further complicated recovery efforts.

Now, four months later, Owens is still addressing problems that took root before his tenure, but he's also beginning to put his stamp on the company and its strategy.

The CEO met with a handful of reporters at the company's R&D facility here this week to discuss the consolidation trend he foresees, highlight attractive technologies and markets and update progress on the accounting clean-up the company is undergoing.

Leaving Doors Open

In June, the industry buzzed with rumors that Nortel and Cisco were mulling a partnership or perhaps even a blockbuster merger. With the media's ears wide open, Cisco's John Chambers said he'd "love" a partnership, to which Owens responded that he's "open" to the idea.

The companies never struck a formal agreement, but the potential for one had analysts, customers and competitors taking notice and pondering the possibilities. Owens didn't do anything to squelch the talk of strengthening ties, saying that he, Chambers and other sector CEOs are "all talking to each other about what's best for our companies."

Alongside the convergence of networking and security, there is another group of companies that could be in the mix, Owens said, adding that consolidation is coming for the industry. This is why he's directed the Nortel financial team to maximize cash flow. "We want to be the consolidator," he said.

Cash conservation is part of the impetus behind outsourcing all manufacturing to Flextronics , cutting jobs and even keeping a close eye on travel expenses.

More likely than a major deal with Cisco or another large telecom equipment company is a smaller partnership with a Chinese manufacturer.

Although Owens believes its R&D efforts give it an edge over overseas producers, the company is exploring its options with large players in the Asian market, Owens said.

"We see these companies competing with us in the Western world ... in places that I would not expect them to be yet," Owens said, citing Huawei Technologies and others.

Opportunities and Challenges

During the 90-minute meeting, Owens identified a number of promising areas -- mostly security, mobility and multimedia.

There are emerging countries, such as China and India, where there are opportunities to get in on the ground floor of what could eventually be lucrative, long-term contracts. But there are also areas of concern, Owens said.

"We are all having difficulty with optical business. There are too many companies in the optical world ... It takes a huge amount of R&D to keep it going."

Despite the jam in the optical sector, Owens recognizes that optical is an important part of the bundle of products and services for carriers. He also foresees Nortel's need boost its DSL presence.

"I wish we were more in [DSL] today, but we're not," he said. "So it's something we're talking about inside of Nortel."


Owens admits the accounting problems have been painful, saying he is committed to getting updated numbers on September 30. Besides restating earnings and meeting with the financial community, Owens has added to the company's ranks the new executive position of vice president of ethics and compliance.

But he had to defend this move in the face of layoffs. "Any company needs that," he said, noting not only Nortel's unique woes, but also the slew of new regulatory requirements.

He also cited the firing of seven executives for cause in connection with the accounting probe as evidence of cleaning up. Meanwhile, Canadian and U.S. authorities are still investigating the company.

Owens said he doesn't believe the mindset that created the accounting scandal is widespread in the company's culture.

"I've never seen a company more intent on doing the right things."