Archive for September, 2006

Force 10: Thanks But No Thanks, Nortel

September 29, 2006

According to The Deal, Force 10 has turned down a $500-million offer from Nortel. VC Ratings  said one of Force 10’s investors said the company wants to do an IPO worth at least $1-billion within 18 months. Force 10’s investors include Morgenthaler Ventures, Meritech Capital Partners, Crosslink Capital, U.S. Venture Partners, New Enterprise Associates and Worldview Technology Partners. Here’s VC Ratings’ take on Force 10’s decision: “The interest from Nortel is a good sign for those VCs. And if their instincts are right about where communications equipment valuations are headed over the next 18 months, more offers for resilient networking startups should be coming.”


Goodbye and Good Luck, Bill

September 29, 2006

Bill Durling, Nortel’s head of public relations, is moving on – hopefully to greener and better pastures. Who knows, maybe Nortel might hire a Canadian as his successor.

Optical Rebound?

September 28, 2006

After being pushed aside since the end of the telecom boom, fiber-optic network equipment is staging a comeback. So says Nortel CTO John Roese who said demand is increasing as the amount of Internet traffic steadily increases. “That Internet bubble that happened in 2000, where we over-built the optical domain, and everybody said we’d never catch up — we are,” he told Reuters today. “I’ve talked to CTOs and CEOs of large carriers over the last two months and … a couple have said ‘We’re not sure why, but our pipes are filling up’.” Roese said Nortel is spending heavily on R&D to make sure it has the next-generation optical equipment for the Internet.

Zafirovski Making the Rounds

September 28, 2006

After keeping a very low profile for many months, Nortel CEO Mike Zafirovski has started a pull-court press to court Canadian investors. After speaking at the Canadian Club earlier this week in Toronto (a 30-minute presentation bereft of anything newsworthy other than calling the federal government the most “e-centric” in the world), Mike Z. is making to a sold-out breakfast presentation this morning in Ottawa on “Canadian Innovation/Canadian Leadership”. While there may be people critical of Zafirovski and Nortel for not moving faster strategically, he does provide the company with a much-needed stable influence – unlike his predecessor, Frank Dunn and Bill Owens, who never appeared to be comfortable in their own skins as CEO. Mind you, good presentation skills and an aura of confidence will only get you so far and Nortel’s overhaul has a long way to go but the company needs to walk before it can run so it can only be a good thing to have someone who can give it some much-needed credibility within the telecom community. Update: Here’s an Ottawa Business Journal story on Zafirovski’s speech this morning in Ottawa.

Videotron Taps Nortel to Upgrade Network

September 26, 2006

Nortel will provide Videotron Ltee, Canada’s third-largest cableco, with softswitches and media gateways so its can offer IP-based services as video calling and unified messaging while expanding the reach and features of its popular VoIP service. Videotron’s cable telephone service has attracted 283,000 customers since it was launched in February 2005 – most of them coming from Bell Canada. “Demand for Videotron’s cable telephone service has been strong,” said Daniel Proulx, senior vice-president, engineering with Videotron. “With Nortel’s proven VoIP solutions and SIP multimedia portfolio, we are confident we can meet current and future needs of our customers as we expand our network to make cable telephone services available to homes and businesses throughout our service area in the province of Quebec.” (Source: Nortel)

Zafirovski Talks Today

September 25, 2006

Canada’s investment community will get a chance today to hear Nortel CEO Mike Zafirovski give a keynote speech today at the Canadian Club. Last week, Zafirovski gave a few media interview where he touched upon everything from potential acquisitions (unlikely) to the the company’s prospects (lots of hard work ahead but getting brighter). It should be interesting to see what he talks about today in the heart of Bay St. Update: Zafirovski didn’t say anything particularly newsworthy during his keynote. The only intriguing tidbit was this comment: “I am very confident the results will start to show improvement well before 2006 is over”. When asked later for more “colour”,  he declined comment.

Inside the Telus IP-TV Deal

September 24, 2006

The Register takes a look at which suppliers are supplying equipment for Telus’ IP-TV build out. For the Nortel, the good news is it won a high-profile contract over rivals such as Microsoft, Alcatel, Lucent and Siemens. Another Telus supplier is Minerva Networks, which will supply the middleware. Minerva’s software is being embraced by Cisco – prompting the Register to suggest Cisco could acquire Minerva because it would give Cisco an end-to-end IP-TV eco-system with no need for Microsoft’s middleware.

Zafirovski Patient, Confident

September 22, 2006

With nearly a year under his belt as CEO, Nortel’s Mike Zafirovski is confident the company is on the right path, although he concedes the pace of change would be faster. In a National Post story today (registration required), Zafirovski said he is interested in making “disciplined acquisitions” but feels there is no urgency to do something despite the consolidating happening within the industry. In fact, he believes there is opportunity for organic growth as rivals go through the integration process. Of course, Nortel’s acquisition ability is limited by declining cash reserves and a stock price that has dropped by 40% since Zafirovski was hired last October. In terms of his accomplishment during Year One, Zafirovski said the overhaul of the management team tops the list.

Zafirovski Speaks!

September 19, 2006

Looks like Nortel CEO Mike Zafirovski is ready to meet the public. He’s giving a keynote speech at the Canadian Club on Sept. 25 in Toronto. Here’s the Canadian Club’s sales pitch:

“Perhaps no industry today faces more leadership challenges than the telecommunications business. (editor’s note: that’s a huge understatement, isn’t it?) As president and CEO of Nortel, Mike Zafirovski works at the very center of the telecom environment. His talk will focus on the challenges posed by unprecedented rapid technological change, the pressures of constant innovation and finally the fierce competitive pressures from Asian vendors. He’ll also talk about how Nortel is responding to these pressures by following a leadership philosophy of “passionate, relentless pursuit of superior results and doing the right thing” in order to thrive in this market.”

Chuga-Chuga Choo Choo

September 19, 2006

Maybe Nortel should carve out a competitive niche by focusing its efforts on serving the railway industry. Last month, it signed a deal with an Algerian Railway involving GSM-R technology; and today it unveiled a GSM-R contract with India’s Indian Railway to improve safety and efficiency in Uttar Pradesh – site of one of the most important and business rail arteries. The wireless network will provide service along a 751-km, 90-station line connecting the major Uttar Pradesh industrial and business centers of Ghaziabad and Mugalsarai. It will be used to connect train conductors, on-board crew, train dispatchers, station personnel and other operations groups, such as those responsible for attaching and separating rail cars at station yards. Perhaps the focus on railways is part of Nortel CEO Mike Zafirovski’s master plan. Rather than trying to be all things to all people, Nortel has perhaps suddenly realized there is a more lucrative future by focusing on a few things…such as railways. Of course, the railway market isn’t big enough to support even a slimmed down Nortel but it makes for a nice slogan: “Nortel: The World’s Railway Telecom Supplier”.
Update: Orion Securities analyst Duncan Stewart estimates the Indian Railways contract is worth $7.5-million based on a $10,000 per kilometer formula.  However, he believes the potential market to provide the railway with GSM-R technology is worth $500-million over the next five years given the railway has an astounding 108,706 kilometers of track. Stewart estimates the Chinese’s GSM-R market could also be worth $500-million over the same period of time. Maybe Nortel is onto something after all.

More on Force 10

September 18, 2006

Orion Securities analyst Duncan Stewart does not believe Nortel’s rumoured interest in buying Force 10 Networks for $550-million will materialize. “We do not think this deal is likely,” he said in a research note. “Nortel just has not got enough discretionary cash (even after selling [the] UMTS access [business to Alcatel]), they do not need more dilution (and we doubt Force10’s VCs would want Nortel paper) and this does not seem like a great fit with the key target technologies that Mike Z has been articulating”. Stewart said Force 10’s customers include Facebook,, Vonage, CERN, F5 and Samsung.

Will The Force (10) Be with Nortel?

September 15, 2006

Susquehanna Financial Group analyst Joseph Chiasson is either really insightful or a really good speculator after issuing a research report that suggest Nortel will spend as much as $550-million to acquired Force 10 Networks Inc. Why Force 10? Apparently, Chiasson, who cites “industry sources” believes Nortel wants Force 10’s high-speed Ethernet switches and routers so it can compete in the enterprise market against Cisco. Last year, Force 10 had revenue of $70-million, and it could post $120-million of sales this year. A few questions: does Nortel has the willingness to spend 25% of its cash on an acquisition? If not, can it raise money through an equity offering – something that seems unlikely given the class-action lawsuit settlement is already causing huge dilution. Does an acquisition of this size fit into CEO Mike Zafirovski’s modus operandi? Does Nortel really want to establish a foothold in the router market given it acquired Tasman Networks last year for $99-million? Update: LightReading has a story on the Nortel-Force 10 rumours, which includes the fact Force 10 just closed a $50-million private equity round that gives it a post-funding valuation of $455-million. Apparently, Force 10 was poised to do an IPO this year but back off due to concerns about Sarbannes-Oxley requirements.

Nortel has Limited Downside

September 14, 2006

RBC Capital Markets analyst Mark Sue issued a short research note on Nortel yesterday. Here’s a summary that appeared today’s National Post.

Mike Zafirovski, Nortel Networks Corp.’s president and chief executive, believes the company needs at least 20% market share in each market to be a viable and profitable player.

So what will Nortel do with its wireless business, given RBC Capital Market analyst Mark Sue estimates Nortel only has about an 8% market share?

Its extremely unlikely Nortel will leave the wireless business, given that it accounts for about 40% of Nortel’s revenue. Instead, look for Nortel to milk its profitable CDMA wireless business and pursue opportunities in next-generation wireless technology known as 4G.

Mr. Sue, who rates Nortel a “sector perform” with a 12-month target price of US$3, said in a research note he sees significant challenges facing Nortel.

In the enterprise voice market, Mr. Sue said Nortel has 15% market share while rivals Avaya Inc. and Cisco Systems Inc. have 17% and 25% of the market, respectively. Nortel’s IP-TV business, he said, has gone through a shake-up recently, and the company continues to play catch up with Alcatel and Cisco.

Mr. Sue said Nortel shares have limited downside potential, and may be able to match the returns of telecom peers this year.

“We continue to wait for meaningful catalysts before we become more positive on the shares, recognizing that Nortel is making steady progress both internally and with customers.”

Nortel Recognized by Hall of Fame

September 13, 2006

Did you know Canada has a Telecom Hall of Fame? Did you know they have special recognition awards? Well, Nortel is getting an award for “its role in pioneering digital communications” – an initiative that was launched in 1976 under the “Digital World” program. Of course, Nortel’s real push from analog to digital happened under the reign of ex-CEO John Roth, who walked away from Nortel in 2001 with a cash booty of more than $135-million (mostly due to stock options).

Gimme Credit Likes Nortel Bonds

September 13, 2006

Nortel sold $2-billion of high-yield bonds in July to, in part, retire a $1.3-billion bank credit facility. Gimme Credit said the 10-year bonds with a yield of 10.5% are pretty attractive to investors. “With ample near term liquidity, this bond looks interesting for aggressive accounts seeking yield, but we will need to reasses this name on a regular basis given our concern about fundamentals”. Gimme Credit estimates Nortel will generate negative free cash flow this yar after accounting for more than $1-billion of interest expenses, capital spending and pension funding.