Nortel Strengthens R&D Operating Model To Speed Innovation

Concentration of Skill Sets, New Initiatives Drive Greater Strategic Focus
OTTAWA – To support its business transformation and competitive position, Nortel* [NYSE/TSX: NT] announced the next steps in a series of strategic initiatives to strengthen the company’s R&D effectiveness. As part of the initiatives, Nortel is moving towards a skills-based R&D site strategy that will create a more unified and efficient global network of its R&D centers. This structure will concentrate R&D skill sets and enable its engineers to innovate more quickly and operate with greater agility to address new technology and product opportunities in the rapidly accelerating telecom and IT market.


“Today’s announcement is about a framework and model that will position Nortel as an industry innovation powerhouse. It will also provide a strategic approach to determine where new R&D work is placed and how resources are utilized,” said John Roese, Nortel chief technology officer (CTO). “This new skills-based strategy has already proven to be successful in driving innovation into the market. Many of Nortel’s groundbreaking technologies – like 40G/100G optical, PBB/PBT, OFDM-MIMO – have been created and developed by co-located teams of critical mass, talent, and like skills. Our announcement today is to take this proven benefit of collaborative organizations to a company-wide scale.”

Nortel’s Ottawa location will remain the company’s R&D Headquarters and its China Lab, which consists of Nortel’s Beijing and Guangzhou campuses, will become Nortel’s second full-services R&D site. As Nortel’s full-services R&D sites, the Ottawa and China locations will have critical masses of R&D expertise spanning all of Nortel’s identified skill sets. Nortel will have nine Centers of Excellence located in: Boston, Research Triangle Park, Silicon Valley and Dallas in the United States; Galway, Ireland; Maidenhead, United Kingdom; Istanbul, Turkey; Bangalore, India; and Seoul, Korea. In addition, Nortel will have four specialty sites located in Belleville, Ontario; Calgary, Alberta; Chateaufort, France and Bohemia, New York.

Over the last year, Nortel has taken solid steps to strengthen its R&D engine. For example, the company has significantly shifted more of its R&D investments into growth areas and next-generation technologies essential to the company’s business transformation and helping prepare its customers to meet the challenges and opportunities of Hyperconnectivity.

“We refer to this as the 20-60-20 model. Twenty percent of our R&D investment is targeted at new, emerging technologies, 60 percent on existing technologies and 20 percent on legacy technologies that still require support for its customers. We also tightened our R&D spend to roughly 15 percent of revenue – more in line with the industry norm and the target operating model for Nortel.” Roese added.

Other aspects of the R&D transformation include: adopting the Capability Maturity Model ®Integration (CMMI**) framework as a way to streamline portfolio decision-making and development processes; establishing a common-engineering function to achieve greater technology re-use; creating a new R&D operations role that reports into the CTO, with a mandate to increase R&D effectiveness and improve the quality and time it takes to bring new products to market; establishing a new incubation program; adding new research initiatives with government organizations, government-sponsored projects, and leading universities; and launching a number of new employee recognition and career management initiatives for the R&D Community.

“The global IT and telecom worlds are under increased stress because of the challenges of Hyperconnectivity,” said Roese. “It is critical that Nortel has an agile, global and state-of-the-art R&D capacity to execute in this new environment. Today and in the future, it will be critical for companies such as Nortel to accelerate product cycles and efficiency at rates never before seen,” Roese added. “My aspiration is nothing short of driving to become the world’s leading R&D organization in our industry. Today’s announcement is a significant step towards that end goal.”
Certain statements in this press release may contain words such as “could”, “expects”, “may”, “anticipates”, “believes”, “intends”, “estimates”, “targets”, “envisions”, “seeks” and other similar language and are considered forward-looking statements or information under applicable securities legislation. These statements are based on Nortel’s current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which Nortel operates. These statements are subject to important assumptions, risks and uncertainties, which are difficult to predict and the actual outcome may be materially different from those contemplated in forward-looking statements. For additional information with respect to certain of these and other factors, see Nortel’s Annual Report on Form10-K, Quarterly Reports on Form 10-Q and other securities filings with the SEC. Unless otherwise required by applicable securities laws, Nortel disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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