IP video networking technology is one of three areas where Brampton, Ontario-based Nortel intends to increase investment in research and development. The other two areas are WiMax and personalized multimedia services, which Nortel calls IMS, for IP Multimedia Subsystems. The company will increase its R&D budget in those three areas by US$100 million in fiscal 2006 and $67 million in fiscal 2007, Zafirovski said in a call with analysts and reporters. Nortel spent about $1.9 billion on R&D in 2005, about 18 percent of revenue, the company said.
At the same time he described the new focus, Zafirovski also said Nortel had realigned its product mix and was canceling six products or programs that cost $73 million in research and development in the last fiscal year. He would not say which products or programs he was referring to. He also mentioned three areas of significant scope reductions, dropping from $80 million in fiscal 2005 to $40 million in the current budget, but he did not name those either.
In addition, Nortel sold two product portfolios that cost $11 million in research dollars last year, including the blade server business, a spokesman said.
"We will not go public with every single product decision, and Nortel has never provided that level of granularity," Zafirovski said when asked for more details.
"We are a networks company, and we believe our ability to provide top quality solutions to enterprises and carriers will be a significant competitive advantage for Nortel," Zafirovski added. "We will make sure we align our offerings much tighter than ever before."
Part of the strategic initiative for metro Ethernet networks for carriers and IPTV includes the appointment of Philippe Morin as president of the new unit, Nortel said. The unit will also focus on wireless capabilities, according to a Nortel statement.
Zafirovski said Nortel has been on a "stabilizing" path in the past six months since his arrival as CEO. For fiscal 2005, Nortel's revenue was $10.5 billion, an increase of $1 billion over the prior year, but the company reported a loss of $2.6 billion, including $2.5 billion for the expense of handling shareholder lawsuits.
Nortel also said that its first-quarter revenue will be flat or down slightly compared with the first quarter of fiscal 2005, but with "strong revenue momentum for the rest of 2006, resulting in high single-digit growth for the full year 2006."