Nortel CEO Departs as Losses Continue

Nortel CEO Mike Zafirovski
Mike Zafirovski
Source: Nortel

After being brought on board four years ago to help turn around one-time telecom giant Nortel, its president and CEO, Mike Zafirovski, is now being shown the door.

Zafirvoski’s departure comes as the bankrupt telecom vendor releases its second-quarter fiscal 2009 financial results showing continuing losses.

Zafirovski joined Nortel in 2005 after serving as the COO of Motorola. Under his tenure, Zafirvoski stated in 2007 that Nortel was back — but by January of 2009 with a mounting losses and a declining economy, Nortel filed for bankruptcy protection.

Under bankruptcy protection, Nortel has continued to lose money. For the second quarter of its fiscal 2009, Nortel reported a net loss of $274 million, or $0.55 per common share. The second-quarter loss is more than double the $113 million net loss that Nortel reported for the second quarter of 2008. On a sequential basis, Nortel has slowed its rate of losses, for the first quarter of 2009, Nortel reported a net loss of $507 million.

A large part of Nortel’s second-quarter 2009 net loss increase is directly related to its ongoing bankruptcy protection activities. Nortel reported that it incurred reorganization costs of $130 million related to proceedings.

Revenues at Nortel for the second quarter of 2009 were reported at $1.97 billion, a decrease of 25 percent on a year-over-year basis, but a gain of 14 percent sequentially over the first quarter of 2009.

Zafirovski joined Nortel at a time when the company was trying to recover from an accounting scandal and management challenges. Zafirovski’s predecessor, Bill Owens, lasted just over a year as CEO after stepping in to replace former CEO Frank Dunn in 2004. Nortel’s accounting mishaps resulted in the restatement of financial results for 2000, 2001 and 2002, as well as the first and second quarters of 2003.

“Mike came to Nortel to transform this company,” Harry Pearce, chairman of Nortel’s board of directors, said in a statement. “It was unfortunate the transformation was derailed by a deteriorating economic climate and the company’s legacy cost structure. The operating improvements and strategic investments made during his tenure significantly contributed to the fact that Nortel’s businesses are so attractive to potential buyers today.”

Zafivoski is not being replaced with a new CEO: Instead Nortel’s management structure is being reorganized such that the individual business units will now report to the Chief Restructuring Officer, Pavi Binning.

Nortel has been selling itself off in pieces over the course of 2009. In April, Nortel sold off its Alteon application networking gear to Radware for $18 million.

In late July, Nortel named Swedish vendor Ericsson the winner of its wireless business, with a price tag of $1.13 billion. Nortel and Ericsson testified before a Canadian parliament committee last week that the deal wasn’t against the nation’s best interests.

The Nortel Enterprise business unit is next up with an auction set for September 11th. Avaya has started the bidding, at $475 million.

Nortel’s Metro Ethernet business is also still up for grabs. So far, it does not have an auction date listed for its assets.

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