Sibling Rivalry: Cisco vs. Nortel

Companies that engage in technology today seem to come in two breeds:

Rookies: There are companies that seem to spontaneously come into existence, to provide a good or service that is still in its developmental stages. The product continues to evolve. This is Cisco.

Veterans: There are older companies that used to engage in older technology that adapt and find ways to embrace new technology, using their name, experience, and resources to continue to grow into consumers’ increased and changing demands. This is Nortel.

Nortel is a big competitor of Cisco. Both deliver network and communications products. Both cater to corporations, small businesses, and single clients. Needless to say, these two companies compete fiercely for business.

As mentioned earlier, one of Cisco’s newest and proudest ventures is the development of telepresence. Check out this advertisement for Cisco’s Telepresence.

http://www.youtube.com/watch?v=cFmQGIgQN1w&feature=pyv

Nortel joining the action of telepresence, too. Here’s Nortel’s telepresence ad.

http://www.youtube.com/watch?v=sHWLjGb_zcs&feature=PlayList&p=DBDE4A582D9A2024&index=4

So how are they different?

As mentioned previously, Cisco became a public company in 1990. Cisco focuses primarily on communications and networks, and even as Cisco expands, its new products still relate to that larger category. Nortel, on the other hand, was founded in 1895 as a telephone manufacturer for Canada. Nortel was incorporated as “Northern Electric and Manufacturing Company Limited”. Over time, Nortel dabbled in manufacturing other appliances and goods. As the market changed, they began moving away from the telephones and manufacturing and toward digital phone service, a precursor to modern global networking.

Like all companies, Cisco has taken a hit during this economic recession.  Even before the start of the current economic recession, however, Nortel was suffering. When it first entered the lucrative network systems market in 1998, it did remarkably well for itself (as did many IT companies) at the time of the dot-com bubble. However, when the bubble burst, so did Nortel – and stocks prices fell from $124 to less than $1. There were management troubles, and executives were accused of fraud and financial mismanagement.

Things continued to go from bad to worse, and although Nortel attempted to conduct business as usual by continuing to expand, the situation did not improve. Ultimately, Nortel filed for Chapter 11 bankruptcy in January 2009. Its individual assets are being auctioned off.

There are a few possible reasons why Cisco has been successful and Nortel has been devastated, despite the similarities in their products.

Most obviously, Nortel was home to many breaches of ethics. Financial fraud seems to be “kryptonite” for business success. The fact that Nortel executives, including the CEO, were even accused of being engaged in corruption implies that the well-being of the company might not have been a priority. Perhaps due in part to its weakness due to all the corruption, the dot-com bust was especially devastating. Nortel was a constantly evolving company, but while some companies managed to “pick themselves up” after the dot-com bust, Nortel did not.

I also speculate that at least part of the reason Nortel failed may have been because it failed to evolve properly. It may not have assimilated into digital global communications territory very gracefully.

Cisco did not have the baggage that Nortel did, with its long past and diverse offerings. It also did not have any apparent breaches of ethics.

Cisco and Nortel directly compete with each other for business.

Check out this advertisement, where Nortel makes the claim that the hardware for their system uses less energy than Cisco’s hardware does.

youtube=http://www.youtube.com/watch?v=4Y3FG1-TxWg&hl=en&fs=1&

Cisco is overtaking Nortel without a doubt. Recently, the organizing committee of the London 2012 Olympics dropped Nortel as the official communications sponsor – and Cisco was chosen as Nortel’s replacement.

This development speaks volumes for the conditions these companies are in.

Nortel is, in a way, Cisco’s older brother. It looks like Cisco is winning the sibling competition.

Stock Price 10/15/09 = opening price: $24.25