Frank Dunn knows bootstrapping. The 47-year-old CFO of Brampton, Ontario-based Nortel Networks came to the company straight out of business school in 1976. After serving in virtually every division of the telecommunications equipment manufacturer, he took over as CEO on November 1.
The circumstances could be better. Like Lucent, its major competitor, Nortel has been devastated by a severe drop-off in demand from the world’s telecom providers. Second-quarter revenues of $4.6 billion were down 36 percent from the same period last year. Despite recent contracts with Voicestream and SBC, the company indicates the outlook for the rest of this year is even worse.
In response, Nortel has been closing down manufacturing facilities and laying off thousands of workers in an effort to adjust to the weaker market. The aim is to reduce the quarterly break-even level to under $4 billion in revenue from about $5 billion earlier this year. The company has taken extraordinary charges of $19.4 billion this year for write-downs of goodwill and inventories, workforce reduction (40,000 through layoffs and 10,000 through divestitures), and losses from customer finance activities. “At this point, they’re positioning themselves to survive the downturn,” says analyst Jim Parmelee of Credit Suisse First Boston. “Dunn’s appointment provides some continuity amidst all the disruptions.”
Fortunately, he’ll have some help. The Nortel board has created a strategy-setting “office of the chief executive,” composed of Dunn, board chairman Red Wilson, and outgoing CEO John Roth, who remains vice chairman of the board.