Nortel to overhaul its research programs

By Susan Taylor

OTTAWA (Reuters) - Nortel Networks Corp (NT.TO) NT.N, North America's biggest telephone equipment maker, will soon announce an overhaul of what research and development work it does in its various offices, the company's chief technology officer, John Roese, said on Thursday.

The plan will be announced in a few weeks, Roese told reporters after a speech in Ottawa. It will involve retraining some of the company's 12,000 R&D staff and may require job and project relocations. However, the move will not lead to new job cuts, he said.

Roese said Nortel wants to create centers where staff with specific types of skills, such as software design, are grouped together. Previously, the location of R&D staff was largely determined by the projects taking place at a facility at any given time.

"The bottom line is it will be driven by skills, it will be driven by where we have the capacity and the economics to support the necessary skills to participate in this market," he said.

The change in strategy follows a detailed review of Nortel engineers and compilation of a database with 35,000 records describing staff skills.

The Toronto-based company has already cut its R&D spending, to about 15 percent of sales from 20 percent, and changed the way it spends that money.

Nortel now sets aside 20 percent of its $1.7 billion R&D budget on emerging technologies, 60 percent on current technologies, and just 20 percent on legacy technologies, down from as much as 55 percent in late 2005.

It will take years for Nortel, which has dozens of R&D centers globally that vary widely in size, to complete the transition, Roese said. Currently, the biggest R&D center is in Ottawa with about 5,000 staff.

"In general, our footprint is mostly in line with where we need to be. However, the layout and the distribution of what we did where is not optimized yet and that is what this next phase is about," Roese said.

Nortel shares were up about 4 percent at mid-session on Thursday, at C$6.85 on the Toronto Stock Exchange and at $6.75 in New York.

($1=$1.01 Canadian)

(Reporting by Susan Taylor; Editing by Peter Galloway)