Nortel CEO out as sales drop by a quarter

Zafirovski: capital structure and legacy costs coupled with the economic downturn proved too difficult to surmount

Nortel's embattled chief executive Mike Zafirovski has stepped down from his post with a slew of board members also departing the company.

Having transformed the company's various arms to standalone business units and begun the process of selling them off, Nortel claims it has reached a "natural transition point".

Zafirovski has stepped down effective immediately and the boards of directors of Nortel Networks Corporation (NNC) and Nortel Networks Limited (NNL) have been slashed from nine members to three. David Richardson will serve as the slimmed-down board's chairperson with Jalynn Bennett and John MacNaughton also remaining.

All three will serve as members of NNC's and NNL's audit committees. Nortel has also revealed it is seeking approval from Canadian courts allowing auditor Ernst & Young to take a greater role in the business and its ongoing restructuring drive.

Ernst & Young has been serving as Nortel's monitor and the vendor is also looking to appoint a principal officer to work with the accountancy firm. The principal officer and Ernst & Young will work alongside the US Creditors' Committee to oversee the running of Nortel units in Chapter 11 bankruptcy protection.

Nortel's business units – Wireless Networks, Enterprise Solutions, Metro Ethernet Networks, Carrier VoIP and Applications Solutions – will now all report to chief restructuring offer Pavi Binning. The vendor's mergers and acquisitions teams will continue to work under the supervision of chief strategy officer George Riedel.

Nortel is also forming a central Corporate Group to oversee management of the restructuring process. Its work will span the duration of the continuing sale process and will continue thereafter. The group will be helmed by John Doolittle, previously Nortel's treasurer.

Nortel Business Services (NBS), which handles the operational requirements of the company's various business units, will continue its work during their sale. Joe Flanagan remains as NBS' head. All Nortel senior management will report to Ernst & Young, the new principal officer and David Richardson's three-man board.

Zafirovski said: "I am extremely proud to have been associated with this company. The board members and I came to Nortel because we really believed in the value of Nortel's people and technology. Although solid progress was made in many areas, at the end, the capital structure and legacy costs coupled with the economic downturn proved too difficult to surmount.

"I have tremendous respect for the board of this company and the process we went through to initially transform the company, and since filing, to work to maximise the value of our businesses while preserving employment and customer commitments to the greatest extent possible."

Nortel has also announced its results for the three months to the end of June, with revenue down a quarter on last year to $1.97bn (£1.14bn). Net loss spiked 142 per cent to $274m.

Zafirovski pointed out that revenue had risen 14 per cent sequentially, with operating expenses also down 15 per cent on Q1.

"While we continue to be impacted by the economic environment and the Creditor Protection Proceedings, we have successfully stabilised the business since filing for creditor protection," he added.