Under new Nortel CEO, changes keep coming

Changes continue to trickle in at Nortel Networks under Mike Zafirovski, who became its new CEO in mid-November.

Yesterday the company announced the resignation of Chief Marketing Officer Clent Richardson, who assumed the newly created post in September 2004, five months after joining Nortel, and will leave it on March 1, 2006. Richardson cited the often-cited "personal reasons" for his decision, alluding in a company-issued statement to plans to move his family from Toronto, Canada, to the U.S. West Coast.

A Nortel spokesperson declined to say whether the company would search for a replacement chief marketing officer or eliminate the position upon his departure.

The news was not the first high-level management change announced since Zafirovski became CEO. Just weeks after he took the helm last month, the company announced the departures of longtime executives Brian McFadden and Sue Spradley. Spradley had been with the company for 18 years, serving most recently as its president of global operations. McFadden was a 28-year veteran of Nortel, serving as its chief technology officer from August 2004 until April of this year, when he was named chief research officer. Upon the news of their departure, UBS Investment Research predicted more management changes yet to come from Zafirovski as part of what UBS called his "aggressive measures toward right-sizing [Nortel's] business model."

In a research note issued yesterday, Merrill Lynch analyst Tal Liani predicted restructuring and extensive cost cutting in the near term under Zafirovski's reign. "Zafirovski has a track record of cutting costs," Liani wrote, pointing out that Motorola's operating margins improved from negative 19% to positive 11% during the three years in which Zafirovski was chief operating officer there.

Zafirovski boldly suggested in Nortel's most recent earnings call that the company's operating margins could approach 15% next year, nearly twice the 8% analyst consensus.

As a financial reformer, Zafirovski will have his work cut out for him at Nortel, which has been overhauling its financial systems for more than a year in the wake of financial scandal and currently has $1.5 billion in debt.

Also yesterday, Nortel announced the location of its new global headquarters. The company's new base is an 11-story, 160,000-square-foot building at 195 West Mall in west Toronto. The new location is less than a half-hour's drive from Nortel's old HQ, which is further west from downtown Toronto in Brampton, Ontario. The 63-acre Brampton facilities were sold to cable operator Rogers Communications for CDN$100 million, a cost-cutting move Nortel announced in late October when Bill Owens was still CEO.