“The bottom line is that our financials are not strong. Restoring financial strength is priority #1.” — Nortel CEO Mike Zafirovski

RESEARCH TRIANGLE PARK, N.C. — Nortel’s new chief executive officer makes another move in his gargantuan task of turning around the company on Tuesday when he conducts an online session with the press.

Mike Zafirovski, or Mike Z. as he’s called at the telecommunications gear manufacturer, seems to be clearing obstacles. Financial records have been cleaned up, a proposed $2.5 billion offer is on the table to settle class-action lawsuits, and he continues to bring in new management.

But he’s also faced considerable scrutiny from analysts and media as to whether a turn-around can take place.

For example, Red Herring last week questioned if Mike Z.’s task was a possible success. Its cover story is titled: “Mission Impossible” and calls his plan to right the company “do or die”.

“When Nortel’s new CEO Mike Zafirovski held his first public event last month, the atmosphere was more witness protection program than celebrity press briefing,” the magazine said.

However, Red Herring also acknowledged that the former Motorola executive has what it called “street cred” for his efforts to revive that firm’s wireless unit with such products as the RAZR phone.

To his credit, Zafirovski pulled no punches in a letter he wrote recently to Nortel stockholders.

“Nortel was a great company for many years, and we intend to make it great again,” he wrote. “We find ourselves at the beginning of that task. Though positive change is underway across the company there is much work to do. In my book, financial strength is the foundation for all company aspirations. The bottom line is that our financials are not strong. Restoring financial strength is priority #1. In fact, Nortel has not been ‘free’ cash-flow positive or shown consistent, profitable growth since 1998. For 2005, Nortel reported revenues of $10.5 billion, net loss of $2.6 billion, (including $2.5 billion for litigation expenses) and operating cash outflow of $0.2 billion. Our debt rating isn’t good and our stock did not perform well in 2005 (as in most years since 2000). My commitment to you is that this will change. And it must.”

The letter, which is part of Nortel’s 2005 annual report, runs nearly 2,600 words in length as the CEO spells out in detail what he plans to do.

“As I write this, I have been leading Nortel for five months,” he said. “Since November, I have met with hundreds of customers, partners and suppliers around the world. They want us to win, and are telling us how. I have toured our world-leading innovation labs, and met with thousands of our employees. They are deeply talented, proud and a very competitive group. Our people want to rebuild this company and are prepared for the tough journey ahead. In my travels to get to know our key stakeholders, I’ve lost my voice several times, drank hundreds of bottles of water, and caught colds on four continents. I have seen our challenges up close, and the more I see, the more I like our chances. I can’t think of a place I’d rather be right now than leading Nortel.”

Zafirovski also reiterates a number of points he made an the CEO Conversation event put on recently by the North Carolina Technology Association — including what he calls “forceful optimism”.

“My strong take-aways and beliefs are that our positives are significant and difficult to replicate. At the same time, our challenges are also significant, but the management team believes, very fixable,” he said in the letter. “We don’t believe we’re looking through rose-colored glasses. Rather, we have adopted an attitude of ‘forceful optimism.’ This is a mindset, belief and attitude that we expect from everyone at Nortel — a combination of positive anticipation for the future combined with a determined approach to maximizing its potential.”

Mike Z. certainly has the zeal necessary to be a successful turn-around CEO. If nothing else, his determined efforts will make for interesting news in coming months — and years.

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