RESEARCH TRIANGLE PARK — Mike Zafirovski’s reorganization, which he calls a “marathon”, is underway at Nortel.

“This is not going to happen overnight,” Zafirovski, the company’s new chief executive officer, said in a teleconference with financial analysts Friday morning. “We have dug a big hole for ourselves, but we have stabilized, and we are starting to move forward.”

Since taking the job just over 100 days ago, Zafirovski said he has visited all “key locations” for Nortel across five continents, met with many employees and customers. “I have a pretty good sense of the company, but I have much more to learn,” he explained, adding he is encouraged by the knowledge he’s gained thus far.

“Most CEOs would kill” for what he called the “innovation DNA” at Nortel, the CEO said. “There is a passion to recreate a great company,” he added a bit later.

Just before 8 AM today, Zafirovski disclosed in a detailed statement that he is directing Nortel to go after WiMax, Internet Protocol Television and IP multimedia subsystems opportunities while shifting the company away from network routers and blade servers.

“Now we are ready for the next phase,” said Zafirovski. “We have our sights squarely focused on restoring Nortel’s credibility, executing a winning plan for profitable growth and recapturing Nortel’s position as a great company.”

In the conference call, Zafirovski, who came to Nortel from Motorola, stressed that “We’re turning up every rock in the company” in terms of reviewing spending. Among decisions being made are what products to pursue — and drop. “These are hard decisions to make,” he said and added, “We’ll be making many more over the next several months.”

Credibility is also a key point for Nortel. The company also announced that it was continuing to have problems with financial reports and would review again filings made as far back as 2003.

As promised in a recent appearance before a financial conference, Zafirovski said Nortel is going to focus its research and development efforts on market segments where he believes the telecommunications gear company can gain “at least 20 percent market share,” Nortel said in a statement.

“We have a team currently conducting a full review of our R&D priorities and investment areas,” Zafirovski said in a statement. “You can expect us to continue to share details related to R&D
prioritization as decisions are made over the next 12 months.”

Nortel spends nearly $2 billion a year on R&D efforts, but that could change. Zafirovski told analysts that the company is “not nearly as efficient” as it should be in R&D spending.

What impact Nortel’s shift in focus will have on its operations in Research Triangle Park, where the company employs more than 2000 people, remains to be seen.

Zafirovski also set a goal of $1.5 billion in market expansion by 2008.

“Execution against these priorities will strengthen the foundation we are laying for a rejuvenated Nortel,” he said in the statement. “We embarked on this marathon in December 2005 when we initiated the first phase of this plan. We’re making steady progress and our goal is to realize the full impact of our actions in 2008.”

Outlining a “business transformation plan”, Nortel said it had chosen “top-performing employees” to lead efforts in “simplifying” business, improving quality, cutting costs and looking for new revenues. Nortel has formed six teams involving 80 full-time, 40 part-time employees and 12 consultants as part of that effort, he told analysts.

Since taking over the company last fall, Zafirovski has put a new management team in place, recruiting among them several former GE executives.

One key challenge for the company remains its finances, as Zafirovski acknowledged with what the company called in a statement “Integrity Renewal”.

“We have an unwavering commitment to be among the top companies in the world in corporate governance and business and financial controls,” he said.

Nortel: www.nortel.com