It’s a Lifestyle; Not Technology

At the upcoming 3GSM conference, Nortel promises to “challenge the industry to deliver the 4G “Lifestyle” by rolling out next-generation, high-speed wireless technologies that can deliver services such as video and high-definition TV broadcasting. When did 4G become a lifestyle? How come no one told me? If it means getting a fast, user-friendly Web access while on the road, I’m all for that. Nortel plans to walk the walk in addition to talking the talking about the 4G Lifestyle (4GL?) at 3GSM by demonstrating the wireless industry “first live end-to-end MIMO-powered WiMAX solution, using advanced innovative antenna technology to deliver high-bandwidth applications, such as real-time video, over personal mobile devices”.

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So What Next, Mr. Z.?

In the wake of Nortel’s decision to eliminate 2,900 employees over the next two years to save $400-million in operating costs, one question that still lingers is what Nortel wants to be when it “grows up”. Despite some asset sales (the UMTS business to Alcatel, the sale of the blade server division to U.S. investment bankers, etc.), Nortel is still a company with diverse operations, although probably not the all things to all people supplier that ex-CEO Frank Dunn was so keen on nurturing.

So, what does current CEO Mike Zafirovski do now that it appears the foundation work is close to be finalized? Does he make an acquisition? If so, how big does/can he go? Does Nortel stay small and strategic, and make $100-million acquisitions akin to the deal for Tasman Networks? Or does it go big to establish a leading role in the IP-TV or enterprise markets?

During a speech in Ottawa yesterday, Zafirovski talked about his six-point program, which features “profitable growth”. The sixth guideline, he said, is Nortel wants to target major markets. “I’m not interested in just small skunk works,” he told the Ottawa Citizen. Interesting.

Technorati Tags: Mike Zafirovski, Nortel

Nortel’s IP-TV Targets?

VC Ratings has a post looking at Nortel’s potential M&A targets in the IP-TV market. It includes Minerva, Kasenna, Irdeto Access and Broadstream Communications.

Technorati Tags: IP-TV, Nortel

Q4 Looks Good

While cutting 2,900 jobs is far from positive news, Nortel also announced preliminary fourth-quarter results that surpassed the expectations of UBS Securities. Nortel said revenue will be $3.26-billion while gross margins will be about 40% – ahead of the $3.1-billion and 38.5% expected by UBS. In a research note, UBS analyst Robert Dennison said strength in CDMA and LG-Nortel joint venture likely accounted for the higher than expected sales in Q4. He said Nortel’s CDMA high-margin CDMA business likely helped gross margins.

Dennison is raising his 2007/2008E EPS estimates to $1.00/$1.86 from $0.66/$1.50 while increasing his stock target price to $28 from $26. “We expect near-term momentum in NT’s stock on the back of CDMA strength and ongoing cost reductions,” he said. “We remain concerned though on the outlook for 2008 when we expect high-margin CDMA revenues to decline substantially. We estimate CDMA contributed 80-90% of overall company EBT in 06.”

Update: The flurry of news over the past 24 hours (CFO Peter Currie’s resignation, the layoffs, the preliminary Q4 rsults) helped All Nortel, All the Time generate record traffic today (2,700 pageviews).

Nortel Restructures….Again

In apparently the final restructuring move and another sign it needs to get leaner and meaner to remain competitive, Nortel will slash another 2,900 employees over the next two years, while moving another 1,000 jobs to “lower-cost locations”. Nortel also plans to shrink its real estate portfolio by 500,000 sq. feet this year – a move that follows the $100-million sale of its sprawling corporate headquarters in Brampton, Ont. last year to Rogers Communications. When completed, the moves will save Nortel about $400-million a year: $300-million due to workforce reductions and $90-million related to real estate.

“We are transforming Nortel, and are focused on building a highly competitive organization that drives innovation and profitable growth,” said Nortel CEO Mike Zafirovski, who added the company will maintain its “industry-competitive” R&D spending at 15% of revenue.

It’s another interesting and probably necessary decision – and you wonder if there is any link between it and CFO Peter Currie’s decision to resign yesterday. Clearly, Zafirovski realizes Nortel can’t be competitively viable if its operating costs aren’t reduced. The question is why now as opposed to six months ago? Another way to look at it is Nortel has little choice but to reduce costs if it wants to remain a stand-alone entity – whereas competitors such as Alcatel and Lucent are trying to do it through consolidation and cost synergies.

Update: For more, check out Local Tech Wire, Blogging Stocks and The Street.com.

Technorati Tags: Mike Zafirovski, Nortel

Currie’s CEO Aspirations

The National Post has a story today speculating that the reason Peter Currie may have decided to step aside as CFO is because he wanted to be CEO. The story hinges on a quote from an unnamed source:

“He’s a very driven guy. He’s left for other challenges before. He’s perhaps been looking to become CEO. I think that’s making more sense to me than other stuff.”

It’s an interesting story but it probably inaccurate. Yes, Currie was interested in become CEO, which is why he likely came back to Nortel in early 2005 while ex-U.S. Admiral Bill Owens was CEO. It was clear to just about everyone that Owens wasn’t going to be a long-term solution so Currie appeared to be his successor after his bid to become CEO of Royal Bank of Canada was unsuccessful.

Currie’s big opportunity to become CEO emerged a few months later when Nortel COO Gary Daichendt, who had his own CEO aspirations, abruptly quit after Nortel’s board refused to push Owens out. Amid this senior management controversy, it may have been the perfect opportunity for Currie to step up to become CEO to give Nortel some much-needed stability. Instead, Nortel’s board allowed Owens to carry on for a few more months until he “retired”, and Mike Zafirovski was hired as his successor.

The fact Currie stuck around for more than a year after Mike Z. came to Nortel’s rescue demonstrates how Currie was determined to finish the job of bringing the company’s finances back from the abyss, which had involved countless restatements after a scandal that allegedly involved the cooking of the books by senior executives (Frank Dunn, et al) to trigger a lucrative bonus structure.

S&P Downgrades NT

S&P analyst Ari Bensinger has downgraded Nortel to a “sell” from to a “hold” amid concerns about “heightened competition and carrier consolidation hampering marketing growth opportunities”. Bensinger expects Nortel’s sales grow by just 3% in 2007. Commenting on the departure of CFO Peter Currie, Bensinger said the company needs to “better stabilize its management group, especialy as it is looking to improve profitability through cost-cutting and non-core asset disposals”.

Nice Work, Mr. Currie

After two years as Nortel’s CFO, Peter Currie has decided to resign – a decision that has to be a surprise to many Nortel watchers given Currie has played an instrumental role in the company’s rebound from an accounting scandal, and he seemed to be an integral part of CEO Mike Zafirovski overhauled senior management team.
Truth be told, Currie’s decision to do a third stint at Nortel (he worked there from 1979 to 1992, and 1994 to 1997) struck me as a little strange. It was like he felt an allegiance to Nortel at a time when the company needed all and any help it could get, so going back to Nortel for a third kick at the can seemed as much a gesture of goodwill and doing the right thing as a career move after he missed out at the top job at Royal Bank of Canada.

An interesting comment on Currie’s departure comes from UBS analyst Robert Dennison, who believes it could signal “a more acquisitive Nortel. We believe his departure is likely due to Nortel looking to be more aggressive in pursuing growth via M&A given the likelihood that most restructuring initiatives and internal financial controls are likely in place,” he said in a research report. Dennis rates Nortel as a “neutral” with a price target of $26.

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Investors Need Patience for $$

If you were involved in one of Nortel’s class-action lawsuits that have been settled, don’t get your hopes too high about getting your money soon. According to the Toronto Star, the cash from the biggest lawsuit – $2.5-billion that was settled with a combination of $819-million in cash and $1.66-billion in stock – won’t be paid out for several months as a process company goes through the claims made by 237,642 shareholders to determine which ones are valid and how much each investor lost. The process could take even longer that that a Maryland travel agency, Rinis Travel Services Inc., has filed an appeal of the settlement. Rinis bought 300 Nortel shares in late-2000 as part of a profit-sharing trust.

Nortel AGM in Ottawa

Mark your calendars for May 2 for Ottawa if you’re looking forward to attending Nortel’s AGM. Chances are it will likely be a dull affair compared to recent AGMs (the six hour affair in Halifax a few years was the “highlight” but given Nortel’s history, you never know what could happen.

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Shrinking Nortel Sales Hammer Bookham

Putting the blame on declining purchases from Nortel, optical equipment maker Bookham Inc. said it has no choice but adopt an “aggressive overhead reduction plan” that will see it eliminate employees, consolidating its U.K. semiconductor business and move more R&D to China. Bookham said Nortel will only account for 5% to 10% of sales in the third-quarter ended March 30 compared with 26% in the second-quarter.

“Given these recent developments, we are immediately undertaking an aggressive overhead cost reduction plan, which when fully implemented is designed to save an additional $6 million to $7 million per quarter in the September 2007 quarter, said Bookham CEO Dr. Giorgio Anania. “By taking these additional actions, we believe our adjusted EBITDA quarterly breakeven level can be achieved at a quarterly revenue level of approximately $55 million to $57 million.

The Bookham-Nortel relationship was spawned in 2002 when Bookham bought some of Nortel’s optical components business for $112-million in stock, which gave Nortel about 30% of the business. The deal also included a supply agreement that required Nortel to purchase at least $120-million of Bookham products over the first 18 months.

In after-hours trading yesterday, Bookham shares fell about 9%, or 26 cents, $2.65.

Technorati Tags: Bookham, Nortel

Where are the Posts, John?

So Nortel CTO John Roese has launched a blog, which is great. But he hasn’t written a post since last Friday, which is not great. John, you can’t be afraid of making a commitment when you launch a blog. You’ve got to nurture it, tend to it, give it some love and attention and, most important, write on a fairly regular basis. Otherwise, it loses some of its energy and people will stop visiting. So, let’s get writing. By the way, if you’re looking for some tips, I’m here for you.

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