10/10/2005 -- Troubled Nortel Networks last week shook things up once again, announcing the creation of two new product groups: Enterprise Solutions and Packet Networks, and Mobility and Converged Core Networks.

Nortel’s plan is a dual-fold one, officials say. The company hopes to simplify its business model and create new cost-efficiencies, in both cases by leveraging common hardware and software underpinnings.

To that end, Nortel’s reorg combines core assets (e.g., Ethernet and enterprise telephony, optical and wireline data) into a unified product group (Enterprise Solutions and Packet Networks) to target the needs of enterprise and carrier customers. With the creation of its Mobility and Converged Core Networks group, Nortel is consolidating its disparate mobile businesses and fleshing them out with core network technologies, officials say.

Analysts are pessimistic about the reorg, however. Some question the shift from a largely customer-focused to a mostly technology-focused strategy, which -- in view of Nortel’s perceived fragility -- could further exacerbate its woes.

"Nortel has shifted its internal organization from a customer-oriented carrier/enterprise focus to a more technology-centric focus," write Joel Conover and Ken Rehbehn, both of Current Analysis.

Above all else, Conover and Rehbehm argue, Nortel is finally starting to collect itself after a series of setbacks, and the latest reorg threatens this stability.

"Nortel’s organizational changes come on the coattails of a series of audits, financial restatements and management changes that have tested the fabric of the company. Despite those challenges, Nortel posted a profit and an upbeat outlook for the future, a sign that it had turned the corner, and that it was finally executing," they write. "This reorganization threatens that fragile stability despite Nortel’s intentions to 'find synergies' and 'simplify its portfolio.'"

Besides, the two analysts argue, Nortel already has synergies a-go-go. "Nortel had already achieved significant synergies and cross-market opportunities with many of its key solutions. Furthermore, it is unclear how Nortel can simplify its portfolio without reducing the number of products that it has to offer, which it claims it has no intention of doing," they write.

Conover and Rehbehm also question Nortel’s ability to repackage carrier-class features and functionality in a product set that’s consumable by enterprise-class customers. "[W]hile we agree that carrier-class features are a prime requisite for serious enterprise customers, Nortel has a less-than-stellar record when it comes to translating carrier-class requirements into a marketable enterprise-class solution for the masses," they write, citing Nortel’s Optical Ethernet effort. "We are concerned that Nortel’s latest organizational effort swings its enterprise business too close to the needs of the largest customers without keeping the small and mid-market enterprise customers in scope." -Stephen Swoyer