Will The Force (10) Be with Nortel?

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.

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6 Responses to “Will The Force (10) Be with Nortel?”

  1. A bigger picture Says:

    If you do some research there is a bigger picture here. If you look at Force10’s referenced customers, most are Service Providers and High Performance Computing Data Centers. These aren’t traditional Enterprise customers using VoIP as an example.

    Then look at the BT 21CN network. According to Lightreading, BT has spent $6.3 Billion USD of their $18.7 Billion USD budget on the original 8 suppliers. They also have an Invitation To Tender on the street for Ethernet solutions. The Force10 products have the performance and scalability to meet this kind of requirement.

    You can also look at how 3G/4G networks are going to deliver video which demands high capacity and performance backhaul to the Service Provider’s core. Another good fit for Force10.

    This leads me to believe that IF Nortel was to acquire Force10 that it would be a key building block in Nortel’s Metro Ethernet segment and a secondary fit in their Enterprise segment. Also, Force10 and Tasman have virtually nothing in common. They are completely different solutions with different target markets and customers.

    Regardless, this should be an interesting industry event to watch.

  2. Observer Says:

    From a financial perpective, “a research report that suggest Nortel will spend as much as $550-million to acquired Force 10” and “does Nortel has the willingness to spend 25% of its cash on an acquisition? ”

    Nortel has a poor track record in acquisitions from the $20 Billion wasted in the bubble era to this very day.

    Talk about having nothing in common with Tasman, look at PEC who they also paid a premium for in a deal the analysts hated.
    -Hoovers said, “after a decade in business Tasman still only manages under $10 million in sales where Nortel paiding a whopping 12.8 times this to acquire them.”
    -Nortel paid a premium for PEC at around $448M who’s earnings have declined since 2002. Returns on this investment are at a fraction of the high yield 10.5% they issued. Better to have just left this money in the bank huh?

    Nortel sold off so much and is still cash strapped. Nortel sold off manufacturing, last of assets, headquarters, closed campuses, with ongoing layoffs trickling in, and recently some of their very business (UMTS).

    They print a multiple in paper of their dramatically declining cash for shares (tanking thanks to revisions) or 10.5% bonds as other merge or make greater acqisitions.

    This new telecom software company seeks new areas while abandoning the old. (like WiMax the Asians and Intel will dominate or IP-TV well poised by cash strong Cisco who Bought Sciebntific Atlanta, for billions not millions).

    Traditional hype reiterated Microsoft partnership recently to sell server software integrating Voice but the market responding immediately to the reality. After all we see how partnerships fail too like Putian or Huawei, even orders like BSNL and BT didn’t take them, or products the CEO calls “average” or “globally uncompetitive” and there is no Neptune, Titan, Dolphin…so what can one expect with no long awaited plan or one made up on the fly with limited and rapidlt declining cash.

    From this declining under $2B in cash, Tom Astle at national Bank expects to be $1.6B by year’s end, they have another $1.8B in debt to address in 2008. They can’t collateralize as other creditors demanded, let alone after huge regulatory and government fines, and it is now harder to issue bonds needing to list Pension liabilities, so making an acqiosition of this size may not be prudent. They also need hundreds of millions for their SAP accounting software and an area they extended repairing before even more revsions. Cash to do acquisitions should be prudently digested I should imagine.

    Other emerging areas susch as WiMax where Intel and the Asians will dominate as their wireless business declines or gets sold off isn’t boding well for this new software company as will going against Cisco who bought Sci-Atlanta for IP-TV what they do on the fly now still isn’t working as LG’s “no substantial returns” may also show. They havn’t had luck with acquisitions in the past let alone now with these market conditions and their financial position.

    Perhaps the hundreds of millions in fraud bonuses they fought so hard to keep to this day (even in light of ongoing revisions from $3.5B to $5B recently) or the losses from BSNL would have been better spent elswhere.

    Nortel looks like a sitting duck struggling to fight off zero after already nearing bankruptcy with so much more to come like the effects of a reverse split on their diluting pool, liquidating 14.5% of company equidty, paying 10.5% on $2B of high yield bonds, revisions and aelling assets to dupe revenues are wearing thin, their largest aset is a tax credit, huge fines requiring cash loom, as they extend repairing controls with revisions and criminal results coming with their reluctance to chase past officers resulting in a derivative class action, huge debt issues they can’t collateralize in 2008, etc., all effect the declining with dire outlook let alone the multiply more ongoing surprises we keep getting hit with…

    Endless woes seemingly unsurmountable at this point, so does it really matter what they try to desperatly announce or try to buy or sell at this point to seem solvent or make acquisitions with noe mergers saving them as they did Lucent? If they buy a winner, they will pay a premium for it, if it really is a winner that is, as so far none are, let alone being able to afford any more.

  3. jamezzz's psychiatrist Says:

    Dear Mark Evans

    my sincere apologies for the crazed individual jamezzz,known on this blog as observer, as he is unable to discern the fact that Nortel’s poor track record of past acquisitions reflects Nortel’s past management, and does not reflect on new and current management under the honorable Mr. Mike Zafirovski CEO Nortel.

    this individual continues to harbor bitterness towards Nortel the corporation,however we are working closely with jamezzz and his mental illness, as a result of his grandpa’s inheritance which was foolishly gambled away in above all things Nortel options?

    I sincerely believe that jamezzz will overcome his mental deficiency and go on to lead a normal life, once he is able to put the monetary loss behind him!

  4. Observer Says:

    Never mind the patronizing and appologizing setting a false stage as you traditionally do on Yahoo with “Dear Mark” and “I appologize for” … you sounds mad hatter calling yourself “jamezzz’s psychiatrist”

    You should applogize for the pollution and contributing zero to the topic instead than solely personally attacking.

    Your personal attacks clearly show who is “crazed”, “mentaly deficient” or “mentally ill” to anyone civil or half intelligent here too.

    Crazed fabrication provides zero in contribution with antagonistic commentary for your relentless vested interest in defiance of the facts, stalking critics, and calling everyone jamezzz as you do on Yahoo.

    Here we have the exact same writing style as “mindgallery” polluting Yahoo’s message board 24/7. “mindgallery” is a chronic liar constantly exposed on Yahoo with his boyfriend “abcsofhealth” of “abcsofhealth.com” who sells cure-all immune juices, changing the juice name monthly to circumcent the FDA, selling holsitic healing and PhD’s in holistic healing, spams emails with penis enlargement kits and free satellite TV offers,eliciting WTC and Tsunami donations fraudulently, and other endless sites as a google search under “abcsofhealth”, “abc4all” or “Legacy for Life” etc. clearly exposes on many, many sites all with the same writing style. They are even affiliated with a telecom company and stocks promotion and they arn’t educated enough to be artsy as you can see from above’s commentary!

    Never mind baiting “honorable” management debate for a company who made one of the globes largest frauds like Enron or Worldcom. You are an ongoing contradiction over the years like the company we suspect you work for in Texas.

  5. Anonymous Says:

    Are you familiar with Nortel’s Secure Router & Ethernet Routing Switch Portfolio? Clearly you are not.

    If you were to take a look at Cisco’s switching portfolio its already behind considerably Nortel’s latest generation of switching and routing products from a performance & feature perspective.

  6. geb Says:

    Observer aka Jamezz,
    Please call your psychiatrist and take your meds. It is not good for you to be running around the Internet writing Nortel diatribes.

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