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1999 Letter to Shareholders
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1999 Letter to Shareholders
Welcome to the third millennium and the excitement of changing times, new beginnings, and the dawn of the Internet era in global communications. As we start the 21st century, we're just at the beginning of the new Internet era that promises a vibrant future for your company, our industry, and our expanding universe of customers and global partners. The phenomenal growth of the Internet has sparked people's imaginations around the world, unleashing unprecedented creativity and innovation. As individuals and businesses begin to realize the potential of the Internet Revolution and to explore new ways to communicate and share ideas, all the old rules are changing. This is a revolution on both social and economic dimensions that's changing the very foundations of business and society. Like the Industrial Revolution of the last century, the Internet Revolution is transformative as well as historic. But there's a difference. The Internet Revolution is a revolution in real time. It moves at webspeed. The Net is a potent force for moving information and data quickly and cheaply, and its commercialization since the mid-1990s is producing a truly global market by connecting buyers and sellers. The Net is also igniting debates about its ultimate impact. Clearly, everything about the Internet Revolution is big, and it's building momentum every day:
The Internet is tearing down traditional boundaries between data and voice, wireline and wireless, and cable and telephony networks, generating a flurry of mergers and acquisitions in the process. The past eighteen months have been marked by blockbuster deals, from AT&T's acquisition of cable giant TCI to the coming together of MCI WorldCom with Sprint to Vodafone and Mannesmann creating the world's biggest mobile phone company. Early in the new year, America Online's proposed acquisition of Time Warner signified the growing dominance of online media. Quite simply, the Internet is ushering in a remarkable period of new beginnings wrought by sweeping transformations in global communications.
Back to Top An Outstanding Year In this fast-changing environment, Nortel Networks has been changing to capitalize on the enormous opportunities generated by the Internet Revolution and electronic commerce. In 1999, we thrived on the excitement of new times and new beginnings to capture high-growth market spaces and enjoy an outstanding year:
Back to Top A Year of Achievement For Nortel Networks, 1999 was not only a golden year financially. It was a year of many achievements. We became more widely recognized as an "Internet company" that delivers the high-performance, eBusiness-grade networks people can really depend on. As we pushed the limits of fiber-optic speed, capacity, and distance, our Optical Internet business grew by more than 80 percent over 1998, solidifying our global position as the primary supplier in this critical market segment. We're now building fiber-optic systems equivalent to one circumference of the globe each day. High-speed Internet access is now a high-growth business, and in 1999, we gained significant market share with our broad portfolio of copper, cable, wireless, and fiber access solutions. Our wireless infrastructure sales grew as customers endorsed our strategy to bring the convenience of mobility to Internet users by building the Wireless Internet. We established innovative collaborations and strategic alliances with leading companies such as Hewlett-Packard, Intel, Microsoft, Sun, Panasonic, and Corning. We completed strategic acquisitions of innovative companies whose technologies will help us deliver the high-performance Internet: Shasta to bring the Internet within reach of the mass business market; X-CEL to expand our leadership in network management; and Periphonics to expand our share of the important call center business. We also announced our intention to acquire Clarify, to bolster our strength in customer relationship management and front office solutions for eBusiness, and Qtera, to help us continue delivering the industry's leading optical solutions. We moved forward aggressively with our transformation into a company delivering the networks that underpin global commerce and accelerate the growth of eBusiness. We continued retooling the company for greater agility and responsiveness and demonstrated greater speed in developing a next-generation portfolio of high-performance network solutions. We made significant progress in our ongoing efforts to put the Web at the core of how we do business. We eliminated barriers to productivity, realigned our resources and investments, and made organizational changes to better serve our growing base of customers worldwide. We're concentrating our efforts on new opportunities to deliver unified networks to service providers, carriers, and enterprises globally. Back to Top What do YOU want the Internet to be? Our "Come Together" advertising campaign raised the company's profile significantly in key global markets during the first half of the year, and in October we used the world stage of Telecom '99 in Geneva to launch a new campaign asking the question: What do YOU want the Internet to be? We heard that people want the Internet to be a service that continually provides greater value to consumers. They want a high-performance Internet that will be an open portal to all the world's information and that can foster a new era of e-commerce. They want an Internet they can really use - easily and reliably - to make their lives richer. From our customers and other service providers and enterprises, we heard the message that they want the Internet to be fast, reliable, manageable, stable, secure, and expandable so they can stay ahead of consumer demand which doubles every hundred days. Nortel Networks is focused on improving network economics, making Internet traffic profitable for network operators worldwide. Everything in Nortel Networks starts with the customer, and everything we do is aimed at making our service provider and carrier customers the lowest-cost, highest-margin operators in the industry. That is critical to their success. Back to Top The eBusiness Opportunity Hardly any business activity has been left untouched by the Internet as companies, both traditional and new, launch themselves into cyberspace. Companies are not only selling products and services over the Net, they're using it for marketing, customer support, cost reduction, recruitment, procurement, communications, and many other functions. The growth of the Internet economy is driving demand for high-performance networks. It's a clear sign of changing times that the global Internet economy is forecast to reach $2.8 trillion by 2003, becoming larger than the gross domestic product of Germany, France, or the United Kingdom. By 2003, the size of the infrastructure segment of the Internet economy alone is expected to more than quadruple, reaching $1.5 trillion. This massive global investment is required to create an Internet with the reliability, speed, and cost-effectiveness business and consumers need. The eBusiness wave generated by the Internet Revolution is already radically transforming the way business is done. In fact, this promises to be an eBusiness tsunami that will ultimately alter the basis of national economies as it shapes entirely new flows of goods and capital. Businesses worldwide are just starting to take advantage of the Net's speed and reach to reduce costs and capture bigger markets around the world. As companies shift billions of dollars of commerce to Web-based systems over the next few years, we expect eBusiness to grow 86 percent annually. It may reach $1.3 trillion by 2003, by which time business-to-business dealings are expected to account for 87 percent of all eBusiness transactions. The first wave of eBusiness was characterized by individual business-to-consumer transactions and a low-performance system. The second wave is based on business-to-business transactions and personalized customer relationships that demand much higher standards for network quality. Business-to-business transactions will be a major growth opportunity - a 'sweet spot' - of electronic commerce. The growing reliance on eBusiness makes building a high-performance Internet an urgent necessity, as well as a significant opportunity for Nortel Networks. As new and ever more powerful waves of eBusiness applications surge through the world's networks, the need for greater capacity - more bandwidth - will fuel the expansion of optical networks capable of handling huge volumes of traffic. This, in turn, will generate applications that require even greater bandwidth. As the shift to optical technologies accelerates, the market for applications and features that make the Internet useful will expand to $65 billion, while the market for service-enabling solutions to make the Internet profitable will reach $20 billion. Nortel Networks is a leading player in each of these market segments, strongly positioned to deliver the high-performance Internet. We're committed to working with our customers and global partners to set the industry agenda for defining Internet quality. Optical networking is at the core of 21st century communications, and Nortel Networks is setting the pace for the industry. Over the coming year, we're focussed on extending the leadership we've achieved in optical networks into packet networks and routing for carriers. We'll build up our wireless data solutions and deliver applications that enable our customers to provide high-margin services. We're committed to working with our customers and partners worldwide to deliver network solutions that will accelerate the move to Web-based commerce and help eBusiness thrive. Total E-Commerce Growth Estimated Worldwide E-Commerce Revenues (Billions) Source: eStats  For Nortel Networks, yet another sign of changing times and new beginnings emerged early in 2000 when BCE Inc. announced its proposal to distribute almost all of its Nortel Networks shares to BCE shareholders. This will fundamentally transform a relationship that stretches back more than a century to the very beginnings of your company. Nortel Networks association with the BCE family of companies, including Bell Canada, is part of our heritage. We started life in 1895 as a wholly owned Bell Canada subsidiary. Over the years, BCE's investment in Nortel Networks declined from approximately 90 percent during our IPO in 1973 to about 39 percent at the end of 1999. With the completion of this transaction, BCE's stake in the company will decline to less than five percent. We are proud of the value we've been able to bring to BCE over the years. But it is now time for the two companies to go their separate ways. Nortel Networks begins the 21st century as a truly independent, global company focused squarely on the high-growth elements of the Internet Revolution and on the eBusiness opportunity. In a highly competitive and rapidly evolving industry, the BCE transaction will increase our ability to pursue strategic initiatives and respond to market opportunities more quickly. It will launch us into our next era of growth and further reveal the company's potential as a leader of the Internet Revolution. Back to Top A Growth Company Our challenge is to continue down the path of high growth. Nortel Networks is and must remain a growth company. Our marketing and sales teams are organized to focus on customer segments with high-growth potential. Today, we're strongly positioned in some of the highest-growth segments of the Internet industry, from optical infrastructure, to high-speed access, to eBusiness applications and services. Underpinning our ability to grow is our focus on being the most valued company in the industry. Being the most valued company will facilitate our growth strategy. We want to be the company customers think of first to meet all their networking needs. We also aim to be the company the financial and investment community sees as being in the vanguard of enabling and accelerating the growth potential of eBusiness. In the year ahead, our momentum will continue as we strive to hire, develop, and retain the very best people in the industry, working to provide our employees with challenging and rewarding opportunities. Being valued by employees is key to Nortel Networks continued success. In order to be valued by the communities where our people live and work, we will continue our tradition of community support, with a special emphasis on expanding educational opportunities in every region where we operate. We will continue striving to meet the network needs of our customers and the growth expectations of the financial-investment community. Through our commitment to building high-performance networks that support and accelerate the growth of eBusiness, we'll work to deliver value to our customers and to our shareholders. The dawn of the new millennium portends changing times and new beginnings for Nortel Networks. We start the 21st century with a clear direction, a strong market position, and a solid foundation for new growth. We are also blessed with a talented team with passion and vision and a fierce determination to win. Thanks to the support of our customers, employees, and shareholders, this new chapter in our history is off to a promising start. On behalf of the company's shareholders and employees, we want to express our thanks and gratitude to Donald J. Schuenke for his many contributions over sixteen years as a member of Nortel Networks board of directors, including the last five years as chairman of the corporation. Mr. Schuenke retired from the board in April 1999. He was succeeded as chairman by Frank C. Carlucci, a director since 1989. We also wish to thank the Honorable E. Peter Lougheed, Gerald V. Dirvin, and David L. House, all of whom retired from the board during 1999, for their service as directors of the corporation. At the same time, we welcome to the company Robert A. Ingram, chief executive of Glaxo Wellcome plc, who joined the board in April 1999. Frank C. Carlucci Chairman of the Board John A. Roth President and Chief Executive Officer June 02, 2000 Back to Top
Last Updated: June 28, 2005
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