Nortel has Limited Downside

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.”

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5 Responses to “Nortel has Limited Downside”

  1. Notel Says:

    Did analyst Mark Sue mean NT stock can not go below Zero?
    Nortel has Limited Downside!
    or may I ask Mark Sue, what is NT downside and why?
    Some analysts have $1.50 12 month targets on NT /check Yahoo stat/
    http://finance.yahoo.com/q/ao?s=NT
    In the last few years NT stock hit the new lowest levels.
    2004 it was $2.93
    2005 it was $2.26
    2006 it is $1.90 so far
    Does Mark Sue think NT can not go below $1.90 anymore to make new lowest levels for the year 2006?
    I think Mark Sue has limited brain capacity or is not honest in his predictions!
    My opinion only and I don’t want you to make much sense of mine or Mark Sue’s predictions.
    Looks like anyone can say anything about NT stock nowadays.

  2. jamezzz's psychiatrist Says:

    Dear Mark E

    please excuse the incessant negative posting by Notel aka jamezzz as he is currently working through therapy to overcome his obsession with Nortel and his wanting to see a Canadian Icon fall in light of his unfortunate, yet rather
    showing of lack of better judgement by using his grandpa’s inheritance money to purchase Nortel option during a very volitile time in its history!

    ps. I will try to see to it that he refrains from venting his frustration here on your blog.

    many thanks

    Dr. Dolittle

  3. OJ_of_Revisions Says:

    Look at the historic analyst ratings all the way down. Notel is right.

    Who’s numbers does Mark Sue use in his analysis? Nortel’s? No one can trust Nortel’s numbers that get worse every time they count them. This is a company who already neared bankruptcy once and recently printed a multiple of paper than cash they have.

    We see their very business, it is getting worse every year not better, show me the money, limited downside is hysterical. Look at the trend, outlook, just do the math on current numbers that changed weekly or last minute let alone the truth.

    NT’s business and cash is declining fast. Revenues are duped. Their largest asset is a tax write-off beefing the books while losing money.
    -NT beefed revenues by selling the last of their assets, sold manufacturing, sold headquarters, closed campuses, are still cuting staff, and are now even sell their very business (UMTS) in their death spiral.
    -NT beefed revenues by paying customers to take product, producty they cut after announcing they had no product for BT’s 19B tender who used everyone but them like the rest of the globe. Last large irder lost money.
    -NT beefed revenues by still overstating, post fraud, and post settlement, downplaying these revisions that almost doubled. NT beefed revenues by selling off everything they can because they are losing more money every year.
    -2004 worst sales since mid 1990’s
    -2005 worst earnings than even 2005, now deduct the asset sales and unreliable revisions to see the real trend…

    Meanwhile, Nortel keeps as much cash as they could to remain SEEMINGLY solvent after one of the world’s largest frauds by printing paper (this mega-fraud really cost them nothing ). Nortel printed $1.9B initially in shares (they tanked announcing revisions) then printed another $2 billion in unsecured bonds (to pay cash portion of settlement and increased collateralized debt) they to the burden of their already negative cash flow (at 10.5%=$210M/yr, as they traditionally dilute 100M shares/yr).

    Printing almost $4B in paper with under $2B in cash remaining. Now look at what more is in store for them. Nortel warned they made no provisions for the huge fines (regulatory/government). From under $2B cash (Tom Astle of National Bank predicted $1.6B by year end) How much will be left.

    Another $1.8B debt to be addressed in 2008. Pension liabilities must be listed making bonds harder to issue. Last creditors increased cash collateralization by 50% after the revisions they initially downplayed that almost doubled, from 866M to 1.48B.

    Also, I do not see them making money as customers and competitors merge, they continue to lose marketshare, cash, credibility, outlook, etc., with no easy fixes or miracles.

    How much will be left before they throw in the towel and this analyst proves wroing again at bankrupt /chapter 11 / insolvent zero. nadda, zip, squat, taking so many for as much of a ride as long as possible that much longer having made a deal with the devil holding so many hostage like shareholders, employees, cireditors, taxpayers, the markets, etc., after all this is the only reason they are still trading. You expect to trust them now too with so many still there? No one else does. Well maybe RBC but once then their CFO is from RBC too isn’t he?

    Their credit rating is not good and the stock makes new lows every year, let alone after a reverse split.

    How will criminal results for one of the globe’s largest frauds effect this stock? Nortel was also reluctant to chase past officers even after repeated requests resulting in a derivative class action.

    It is endless, just endless. Mark Sue has a wonderful sense of humour doesn’t he? Nortel CEO called him “delinquent” once for not upgrading his stock. Ironic coming from a guy neglecting written contracts on 8 seperate occassions while joining a company struggling to regain credibility. CEO even downplaying revisions that doubled then downplayed no further penalty because work was already when these revisions were new. they pay a premium for him like PEC or Tasman while they slandered others, go figure.

    No limited downside? Horsefeathers! They are headed toward zero. Do the math, see the trend/outlook. Beware of what you read/inevstigate the facts/truth.

  4. Godzilla Says:

    One of the key questions is how does one define market and how does one measure market share.

    Wireless is no longer a relevant market for Nortel. What is relevant is CDMA, where the market share is above 8%. In the other legacy niches in which it plays (GSM, UMTS core), Nortel’s market share is approaching rounding error status.

    Can someone tell what Nortel’s share of Wimax is?

  5. Ziggy Says:

    The idea of pursuing 4G wireless is a total joke.

    Pursuing 3G cost on the order of $500M R&D per year for about 5 years. Because the returns were low and slow, Nortel could not cope and so exited.

    Pursuing 4G will be the exact same. Imagine Nortel pumping $500M R&D per year for the next ~6 years to develop 4G with low and slow returns again. 3.9G, called LTE, is predicted to be in 2010-2012. 4G hasn’t even really started yet, so the plan is to aim at a very expensive technology due in 2012+?

    Give me a break.

    Zafirovski is obviously just giving false hope to his customers and investors so they won’t bail on CDMA and GSM and thus the milking runs out.

    Nortel is out of wireless, it is only a matter of time, and then it will be what it should be, a small enterprise company.

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