Archive for February, 2006

Should I Stay or Should I Go?

February 28, 2006

In light of Mike Z.'s contention that Nortel needs at least 20% share to be viable in each market in which its participates, National Bank Financial analyst Tom Astle has issued an intriguing research report looking at some of Nortel's major units to determine what should be turfed, what should be fixed, and what should be fixed through a partnership. The leading candidate to go, Astle contends, is Nortel's carrier data business where it has no router and less than 10% market share. He also suggests the company sell its small and medium size business unit, which could fetch a good price from multiple bidders. Among the leading candidates to "exit or partner" are Nortel's large enterprise data and GSM businesses, while UMTS operation falls into the "fix or partner" category. Astle's report can be found here (National Bank Financial asked for the report to be removed). Note: This post has been updated to correct some earlier mistakes/inaccuracies.

Nortel “Overweight” Confirmed

February 28, 2006

Prudenttial Financial analyst Inder Singh reiterates his "overweight" rating on Nortel Networks with a target price of US$4.

And the Next ex-GE Hire is….

February 27, 2006

….Joseph Flanagan, who becomes vice president of order management. Flanagan, who will report to senior vice-president for global supply chain Joel Hackney, has spent the past 13 years working with General Electric – Nortel CEO Mike Z.’s old stomping grounds. In the wake of the GE-ification of Nortel, it is interesting to look at a Financial Times story about Motorola CEO Ed Zander who has kept most of the team he inherited rather than bring in his own people.

Nortel Closes Tasman Deal

February 27, 2006

The $99.5-million, all-cash acquisition of Tasman Networks closed today, and it’s now part of Nortel’s enterprise data networks business unit. "This furthers Nortel’s strategy to be a leading provider of IP telephony products and applications to the enterprise market", the company said in a press release. With Tasman officially in the fold, it would be interesting to get a better handle on Nortel’s enterprise strategic in terms of where it wants to compete and how it will navigate the competitive landscape against strong players such as Cisco and Avaya.

Nortel’s Strength in IP-PBX, Optical

February 27, 2006

And now for something different….some positive news for Nortel. According to Infonetics Research, Nortel leads the IP-PBX market – with Cisco and Avaya hot on its heels. That said, Infonetics said most of the PBX market’s growth is coming from EMEA, Asia and the Caribbean/Latin America while the North American market grew only 4%. Over the next five years, Infonetics expects the PBX market to grow by 82% while the TDM market will decline by 88%. There’s also good news from the optical market – will wonders ever cease?! – as global sales climbed 19% last year to $10.7-billion, driven by the metro equipment (+15%) and long-haul (+32%) markets. Infonetics principal analyst Michael Howard said it is the first time the optical market has grown since 2001. Nortel ranked second in worldwide optical network hardware behind Alcatel.

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Nortel’s $1.9B R&D Plans

February 26, 2006

There seems to be some confusion about CEO Mike Zafirovski’s promise to reveal Nortel’s $1.9-billion R&D plans this week. The $1.9-billion figure is what Nortel spent in 2004 so he seems to be implying Nortel will maintain R&D spending at the same level, even though the company has talked about having a more effficient structure by operating fewer facilities and being more focused. In any event, what Mike Z. has done is set high expectations among analysts on what he’s going to disclose this week. Given the way his comments came across during a presentation last week at the RBC conference in Whistler, analysts are probably looking for something dramatic from a strategic, operational and/or structural perspective. For more on Nortel’s future, BusinessWeek has a story in the most recent issue.

Post-Zafirovski Presentation Thoughts

February 24, 2006

In the after-math of Mike Z.’s presentation yesterday, here are the basic issues at play. First, Zafirovski is trying to transform how Nortel operates its business. This runs the gambit from the markets in which it plays, being smarter and more focused about R&D spending, a more streamlined, efficient and flexible operating style, and better and faster decision-making. In other words, it’s Corporate Make-Over 101. Mike Z. appears to be doing all the right things to get Nortel headed in the right direction after too many years of operating with a lack of strategic vision and strong leadership. That said, he could do all the right things and still not succeed in revitalizing Nortel. Why? At the end of the day, Nortel could become the more efficient, quick-moving entity with strong management and a clear strategic vision but it will not matter if its technology and services don’t resonate in the marketplace. If rivals such as Cisco, Juniper, Nokia, Ericsson, Huawei and Alcatel have better products and/or better prices, Nortel could find itself spinning its wheels. If Mike Z. wants to come out looking like a hero, Nortel needs to revitalize its technology portfolio and create new tools to attract customers. This is the only way Nortel is going to grow sales and profits.

Go Figure!

February 24, 2006

It’s somewhat ironic that on the day CEO Mike Zafirovski reveals the broad strokes of his strategic plan to revive Nortel, the stock falls 8 cents to a 2006 low of $3.17. As much as Mike Z. put on a good show yesterday and the housecleaning he has done during his first 100 days as CEO, clearly there is still a lot of “show-me” investors who are unwilling to climb back on the bandwagon just yet. Then again, it won’t take much for Canadians, in particular, to fall in love again if Nortel reports one quarter of encouraging results given our strange fascination with all things Nortel.

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He Came, He Conquered

February 23, 2006

Mike Zafirovski’s first public presentation as Nortel’s CEO was impressive. At the RBC conference in Whistler, he came across as straightforward, frank and focused on doing all the grunt-like “blocking and tackling” needed to build a foundation for the company to move forward. Unlike Bill Owens who was short on details, Mike Z. provided investors with lots of food for thought by touching upon a number of key issues. Among them is the assertion that unless Nortel can have 20% in a specific market, they will either invest to get there or exit the business. Currently, he said Nortel has only 20% market share in five of the 22 markets in which it competes. Perhaps the line of the presentation was when RBC analyst Mark Sue asked when he should upgrade Nortel shares. Without missing a beat, Mike Z. replied “I think you are being delinquent to be honest with you”, which drew loud laughter from the audience.

Today’s The Day

February 23, 2006

After three months of hiding, Nortel CEO Mike Z. finally talks publicly today at an RBC conference in Whistler. To be honest, I don’t suspect he’ll say much given Nortel’s Q4 results will be filed within the next six weeks. As well, RBC’s analysts – if yesterday’s performance is any indication – won’t ask any tough or difficult questions such as: would you sell PEC Solutions?, or are you interested in buying Redback Networks?, or is Nortel still serious about the enterprise market? You can list to the Webcast of his appearance at 11:40 a.m. here.

Sprint Capex Bodes Well For Nortel

February 22, 2006

Sprint Nextel’s higher than expected capex guidance of $6.3-billion could be good news for Nortel, which is a key supplier for Sprint’s local business and has 25% to 30% of Sprint Nextel’s CDMA footprint.

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Hey, Nortel Hires Chief Strategy Officer

February 21, 2006

Nortel has hired another senior executive but – for a change of pace – it’s not someone from General Electric. George Riedel has been named chief strategy officer, which makes him responsible for shaping strategy including business development, M&A, emerging technologies, market opportunities, and strategic partnerships. Riedel comes from a three-year stint at Juniper Networks where he was vice-president, strategy and corporate development. Before that, Riedel spent 15 years with McKinsey & CO. where he co-led the telecom and high-tech practices in North America and Asia. With six management appointments since Mike Z. took over in mid-November, all that appears left to do is find a chief technology officer. Update: Nortel also needs a chief marketing officer, as well as a head of services and head of Asian operations.

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A Long Wait for Nortel’s Q4/2005 Results

February 20, 2006

In the wake of its accounting scandal, don’t expect Nortel to issue any financial results without making sure everything has been scrutinized, double-checked, most important, audited. There’s no way this company wants to embarass itself with numbers that aren’t as close to perfect as they can be. As a result, the Q4/2005 results are unlikely to come out until next month when Nortel files its 10-K with the SEC. But given they are coming out fairly soon, you have to wonder how much Mike Z. will say this week at the RBC conference in Whistler. A Webcast of his presentation, by the way, can be heard here on Thursday.

Zafirovski to Speak This Week

February 19, 2006

For people anxiously to hear CEO Mike Zafirovski’s strategic vision, the wait could be over this week when he delivers his first public speech at RBC Capital’s Communications, Media & Technology Conference in Whistler, B.C. Since taking the helm in mid-November, Mike Z. has been busy overhauling the senior management team, making a small acquisition (Tasman Networks), refinancing debt and, of course, playing a key role in getting all those pesky class-action lawsuits settled soon. The one thing, however, Nortel watchers are still seeking is Mike Z.’s vision on how the company plans to grow sales and profits. Will Nortel focus its operations by getting out of some businesses? Will it reduce R&D or try to seek more JVs like the ones done with LG and Huawei? Do acquisitions play a role in the future? Will PEC Solutions – Bill Owens’ price and joy – be turfed? We may find out this week…or not. Stay tuned! It’s being Webcast so check back for the details.

Old Guard Leaving the Board

February 18, 2006

It’s out with the old and in with the new when it comes to the Nortel board. Exiting stage left are John Cleghorn, Robert Brown and Robert Ingram, who won’t stand for re-election during May’s AGM. Needless to say, it has been a thankless job for these seasoned executives who probably thought sitting on the Nortel board was going to be a nice, high-profile gig with the country’s flagship technology company. Instead, it turned out to be a nightmare as an accounting scandal destroyed Nortel’s credibility. It should be pointed out, however, that it was the board and the compensation committee that approved a bonus program that provided the temptation for a dozen or so executives, including ex-CEO Frank Dunn, to allegedly cook the books. While Dunn has been vilified for his apparent misdeeds, the board has gotten off way too easy. I mean, one of the directors – Guylaine Saucier – was an expert in corporate governance so you figure she might have been able to alert her fellow directors about the perils of creating a bonus structure that was vulnerable to potential abuse. You really have to wonder about the new members of the board and why they decide to step up to the plate. I guess it’s a sense of faith in Nortel and its importance to Canada, as well as the belief that if the company does revive itself, there will be a lot of personal satisfaction in being part of the process.