3/20/2006 -- Much of Nortel Networks' recent history can be neatly summed up by a Bruce Springsteen lyric: one step forward and two steps back.

Nortel did the retrograde three step again last week, outlining a number of new strategies designed to increase stockholder value (and further illustrate the extent of new CEO Mike Zafirovski's ongoing transformation effort) -- and once again restating its financials, this time for the previously restated 2003 and 2004 time period. Analysts say Nortel's latest contretemps undercuts the dubious importance of its new go to market strategies -- which the company claims will result in more than $1.5 billion in margin expansion and 20 percent growth in market share -- and draws renewed attention to the mistakes of its past.

"[T]he announcement can easily be positioned by Nortel's major equipment infrastructure rivals as a tattered marketing fig leaf meant to distract the overall market from Nortel's ongoing and naked embarrassment in the area of issuing accurate financial statements," write analysts Ron Westfall and Joel Conover, both of consultancy Current Analysis. "The restatement of the 2003 and 2004 results is particularly troublesome since Nortel had previously restated the results for those years with the idea that such results were finally cleaned up. Clearly, that was not the case and this gives Nortel's infrastructure equipment rivals a major source of sales and marketing fuel to continue challenging Nortel's overall corporate credibility in matters large and small."

Not that Nortel has completely corrected its financial reporting woes. In addition to the re-restatements of its FY 2003 and 2004 earnings, Nortel restated its finances for the first nine months of 2005. What's more, it also announced a delay in the filing of its 2005 financial report. Finally, the troubled networking player must also defend -- or downplay -- its $2.2 billion loss in Q4 of 2005.

In this respect, the strategy Nortel announced last week is of questionable value, analysts say. Nortel expects to realize operating margin expansion of $1.5 billion in 2008 -- including $200 million in cost savings from prior corporate structural and financial overhauls. "This effort includes emphasizing the company's 'Business Transformation' plan, a serious and renewed commitment to 'Integrity Renewal' for all employees, and identifying 'Growth Imperatives' such as market expansion opportunities within the IPTV, IMS and WiMAX areas," Westfall and Conover explain. "Additionally, Nortel reiterated how its decision to re-direct funding from its services edge routing technology area and the selling of certain assets of its Blade Server Switch Business unit will bolster R&D and investment prioritization focus and efforts."

The plan does have its attractive points, the analysts concede: If nothing else, it gives Nortel a chance to trumpet how Zafirovski is recasting (or reinventing, in marketing-speak) the troubled company. Zafirovsky has outlined a business transformation plan that targets Nortel's most significant operational challenges and identifies six areas in which quality can be improved, overall costs reduced, and new revenues generated.

But some aspects of Nortel's growth strategy are of questionable value, Westfall and Conover argue. "Nortel is hardly alone in identifying near-term market growth opportunities in the IPTV, IMS and WiMAX areas. All of these areas have already attracted the product development and sales and marketing interest of Nortel's major telecom infrastructure rivals, which will render Nortel's goal of achieving at least 20 percent market share, or market share leadership, in such market areas ... and their related sub-segments ... all the more challenging."

Quite aside from Nortel's questionable financials, competitors can spin the company's new initiative in other ways, too. "[W]hile Nortel's six targeted goals for improvement are all applicable to its enterprise infrastructure and telephony operations, Nortel has made no public-facing statements describing how these changes will manifest in its enterprise line of business. Major equipment infrastructure competitors including Cisco, Avaya, Siemens, Alcatel and 3Com will use this event to underscore Nortel's continued obsession with operator and carrier infrastructure markets," the analysts write. -Stephen Swoyer