Nortel enters joint R&D pact with IBM

Nortel Networks Corp has entered into a major collaborative R&D agreement with IBM Corp, Armonk NY, as part of a new strategy to reduce R&D costs while accelerating the introduction of products to the market. The technology, research and services pact will focus around a new Nortel-IBM Joint Development Centre (JDC) to be built at Raleigh NC in the Research Triangle Park.

The JDC will focus on the design and development of new products and services and is described as a “first step” in the growing relationship of the two firms. The first projects will see the development of a new class of blade servers combining IBM’s server technology and Nortel’s carrier-grade communications expertise.

The Nortel-IBM pact isn’t not expected to have a significant impact on Nortel’s Canadian R&D operations, largely located in Ottawa, although 750 personnel in the city were laid off during Nortel’s last round of staff reductions. In addition, Nortel has recently announced that it will expand R&D activity in India through equity partnerships and joint ventures and is also pursuing new R&D ventures in China.

With IBM, Nortel will be using that firm’s engineering and technical services to conduct R&D on a project-by-project basis. According to a company statement, the collaboration will see the companies working together “to enhance and extend current products, drawing from various divisions within Nortel and IBM, to drive new revenue growth and reduce R&D costs”.

Product areas in which the firms will conduct joint R&D include end-to-end broadband, Voice over IP, multimedia services and applications and broadband wireless.

R&D OUTLAYS FLAT

Nortel’s R&D expenditures have been flat for the past three years after falling dramatically between FY00 and FY02. Nortel’s 2004 annual report shows that R&D expenses over the last three years are: FY02 — US$2.08 billion, FY03 — $1.96 billion, FY04 — $1.96 billion. R&D outlays for Q1/05 are $474 million, down $20 million from the same quarter in 2004 due to restructuring.

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