Sometimes you wonder if Nortel can't win for trying. The company manages to convince itself its 2005 financial results are ready for public consumption (a positive development), then goes and releases them late in the day on Friday after everyone's headed home for the weekend. (a negative development). From an optics perspective, it gives the impression Nortel is trying to hide something because the only reason to put out a major press release late in the day on a Friday is if you want to avoid attention from investors and the media. Of course, Nortel will probably claim that it received SEC clearance and/or that its finally got the paper work done Friday afternoon so it had no choice but to follow disclosure rules and release them. Maybe this is true but this isn't the first time Nortel has used this Friday afternoon "trick" to release financial news – and may not be the last. If Nortel – and CEO Mike Zafirovski – are looking to regain the confidence of investors and analysts, they at least need to appear that they are being as straightforward and transparent as possible. Putting out a press release to disclose financial results that should have come out a few months ago is not the way to do it.
Archive for April, 2006
Poor Frank Dunn. He wants to avoid testifying before the Ontario Securities Commission because he's afraid OSC will turn over his information to the SEC. Earlier this week, Justice Colin Campbel rejected Dunn's request to avoid answering questioning about Nortel's accounting problems. We'll see you in court, Frank.
Does it surprise anyone that Nortel decided to issue its fourth-quarter results on Friday long after the markets closed? It's a class P.R./I.R. technique to avoid getting media coverage. In any event, the company said it lost $2.6-billion last yea (including $2.5-billlion make a couple pesky class-action lawsuits go away), compared with a $207-million loss in 2004. Revenue was $10.5-billion compared with $9.5-billion. Nortel also said it has adjusted $1.5-billion of revenue over the past three years – nearly $300-million more than what it had targeted just a week ago. Nortel's also found a way to get its stock price over $5: a reverse stock split that could see shareholders approve a consolidation as high as 10 for 1. If you think about about, Nortel could get its stock back to the record high of $124.50 (July 2000, John Roth's the CEO, sales are booming) by doing a 1:30 stock split.
If Mike Zafirovski is considering a major deal, his bargaining power with Siemens was given a big boost when the German conglomerate unveiled plans to chop 1,000 jobs (administration, sales and development) at its communications division due to lower than expected profits. "The job cuts are unavoidable as Siemens is required to reach cost positions that correspond to international pricing competition,'' Siemens said. The communications business, which is reportedly on the block or being spun out, has 54,500 employees. According to Bloomberg, the unit has struggled to keep pace with rivals such as Ericsson AB, Nokia Oyj and Nortel.
So does Nortel pursue a deal with Siemens to create a $25-billion global powerhouse? Or does Nortel CEO Mike Zafirovski continue to focus on fixing the company before he even considers a mega-merger? Check out today's National Post on why Siemens make sense.
There's an outfit called BDR Inc. (a.ka. webuynortelshares.com) that is offering to purchase Nortel shares privately "at a substantial premium". Describing themselves as "a duly registered Ontario, Canada Corp." and "an agent for a loss recovery program", they require information such as how many shares you own and your average price per share. My advice: proceed with caution.
After being forced into retirement by Nortel, Bill Owens seems as busy as ever. He has joined U.S. private equity firm AEA Holdings and leading their expansion into China and India. Owens is clearly bullish about India given his willingness to have Nortel take on a money-losing wireless contract with BSNL.Owens will move to Hong Kong to supervise AEA’s investments in China, India and Southeast Asia. The fact he’s so active and doing so well makes you wonder why Nortel had to give Owens such a lucrative going away package but, then again, Nortel has shown tremendous generosity towards is departing executives in the past couple of years even as it battles through accounting woes.
Update: Owens has also been appointed a director with Wipro Technologies.
Lucent did Nortel no favours today when it suggested a slow ramp-up in customer spending will prompt it to lower its fiscal 2006 guidance to "down year over year", compared with earlier guidance of "flat to up in the low single digits". Lucent blamed delays with 3G in China and modest rev. A and UMTS sales until September. Desjardins analyst Paul Howbold said given Nortel has many of the same customers as Lucent, Nortel first-half results would be affected as well.
As much as coverage of Nortel is focused on its ongoing acccounting woes and overhauled senior management team, the company's technology portfolio is receiving little attention – probably for good reason given it hasn't been a corporate focus for the past two or three years. One product, however, that has done extremely well is the BCM 50, which provides small businesses with a system to use telephone services such as call centres, voice-mail and VoIP. Analysts believe the BCM 50 could have an annual run-rate of $600-million business by year-end. For more on the BCM 50, check out IT Week.
Nortel's partnership (and small equity stake) with Avici hasn't worked out that well in recent years as both companies have badly struggled. But maybe there's some hope for the marriage after Avici posted better-than-expected first-quarter results and raised its revenue guidance 2006 by 50%. A big chunk of Avici's success – $21.1-million in revenue – came from AT&T, which accounted for 75% of overall sales. The core IP's router improved prospects come four months after it eliminated 45% of its 300 full-time and contract staff positions, or 135 jobs, to reduce its annual costs by $20 million, the firm announced this morning. For more, check out Light Reading.
If you were at all curious about Mike Zafirovski decided to become Nortel's CEO, he came clean yesterday after a speech at a conference in North Carolina. "I would go with a small company and grow it, or I could go to a tarnished icon and rebuilt it," he said. "Obviously, Nortel fits into the second category." Of course, it doesn't hurt that Nortel was willing to give Mike Z. a very lucrative compensation package, complete with a nice salary, stock options and a $500,000 a year retirement package. Then, there's the profile of working for a world-class company such as Nortel versus a small, upstart battling for business. For more, click here.
Has Nortel finally dotted the "I"s and crossed the "T"s on its financial results? Maybe, maybe not. In any event, the company said yesterday it will add another $350-million of revenue to an earlier restatement of $866 million. Nortel said the latest revenue juggling for: "2005, 2004 and 2003 revenues would increase the revenue adjustments by approximately $120 million, $220 million and $100 million, respectively, from those previously announced. The current estimated impact to periods prior to 2003 would decrease the revenue adjustments by approximately $90 million from those previously announced". While Nortel expects to file its 10-K (2005 results) with the SEC by April 30, the company said its first-quarter results could be released as late as June 5. The delay means Nortel will default on another credit facility.
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TD Securities analyst Chris Umiastowski has a new report on the telecom equipment market entitled "Who’s Next to Get Hitched?". He works on the assumption Nortel will attempt to stay independent rather than seeking out a mega-merge a la Alcatel-Lucent. Instead, Umiastowski focuses on a key M&A market – GSM/UMTS – where he believes a lot of strategic maneuvering could happen. For Nortel, the GSM/UMTS market is a fish or cut bait situation. Umiastowski believes Nortel must get bigger or get out of the business. The most obvious way to get bigger is buying Siemens’ communications business, which is apparently on the block. This will vault Nortel from #5 in GSM/UMTS to #2. The problem, however, is the Siemens business could also attract interesting from Motorola and Nokia. Umiastowski believes if a bidding war happens, Nortel will likely not be able to play if the price gets higher than 1.5 sales. Buying the Siemens business would be a huge strategic move for Nortel and CEO Mike Zafirovski, who has a huge amount of work to do to re-invent and reinvigorate the company in the wake of an accounting scandal and an increasingly competitive landscape.
Analysts are not expecting to be overwhelmed when Juniper Networks posts its first-quarter results today. Apparently, demand for routers has softened as carriers such as Verizon looking for equipment at the edge and access parts of the network. Juniper’s prospects will also be impacted by the marriage between Alcatel and Lucent – given Juniper had a sales partnership with Lucent. The Street.com’s Scott Mortiz has more details.