Nortel’s $650M of Cost-Cutting Possibilities

There’s some more interesting analyst research about Nortel – this time from TD Securities’ Chris Umiastowski, who believes Nortel has more than $650 million of potential savings in the works. Umiastowski believes Nortel can take $400M+ out of its supply management and procurement operations and $250M in finance costs savings. Then, there is another $200M to $400M in R&D savings that Umiastowski believes will be redeployed. In terms of supply management, he thinks $400M could be the lower limit of CEO Mike Zafirovski’s restructuring plans given this area is seen a high priority and four executives have been hired recently to run the supply and procurement operations. Umiastowski thinks Nortel will reduce its financing costs by about $250-million. Currently, he said Nortel spend $400-million a year on it – which is three times higher than the 1.2% of revenue that a "typical organization" may spend. So when could these savings materialize? Umiastowski believes it could happen in the next 18 to 24 months. With a "buy" rating with a target price of US$4, he seems to be getting more bullish on NT. "Every time we get a better idea of what Mike Z has planned for Nortel, we begin to feel more comfortable with the stock. We suggest buying at current prices," he said.

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