Archive for January, 2007

VoIP: As Easy as 1, 2, 3

January 31, 2007

Just when you thought Nortel was about to hitch its strategic wagon to IP-TV (video), they fire up the VoIP marketing machine. The company has introduced new VoIP packages under its – are you ready for it? – IPT 1-2-3 program. The idea is companies that haven’t used VoIP can now get them in a snap from Nortel, including unified communications. Nortel highlights Bally Technologies as a customer that has embraced Nortel’s A-B-C, 1, 2, 3 approach:
“We had a telecommunications decision to make,” said Matthew Alden, IT manager, Bally Technologies. “Do we continue business as usual or upgrade 20 global facilities to VoIP by replacing with a Nortel solution or another competitor’s solution? After working closely with Nortel we realized that the Nortel migration path from TDM to VoIP and the long-term vision to unified communications was the right business decision. Also, the Nortel solution was much less disruptive to our day-to-day global business activities and was much less expensive than the competitor’s path. Since our migration, the addition of three new U.S. and International offices has proven to be a very simple process.”

Wow, where do I sign up?!

Is Nortel Good Value?

January 30, 2007

In a submission to Seeking Alpha, Contrarian Investor’s Mark Schlotzhauer uses Nortel as an example of how investor needs to focus on value rather than following the crowd. To assess whether Nortel is good value, Schlotzhauer uses GuruFocus.com as a benchmark (it’s a site that tracks the investment portfolios of super-rich people such as Warren Buffett). Of this elite crowd, only two (Charles Brandes and George Soros) own Nortel. Schlotzhauer concludes that he is “staying clear of Nortel as we feel it does not have an adequate margin of safety and no economic moat ( i.e. sustainable competitive advantage)”.

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Nortel CTO Launches a Blog

January 28, 2007

Nortel chief technology officer John Roese has demonstrated a gift for the gab given the number of media interviews he has done since joining the company last year but now he’s jumped into the blogosphere with his own blog. Frankly, I’m stunned to see a high-profile executive with a Canadian company writing a blog, so Nortel and Roese should get some major props for doing it. Here’s an excerpt from Roese’s blog, which explains why he’s doing it.

External blogs are a new thing at Nortel and the fact that we had comments and observations from employees, customers, partners and others means that the medium has great potential for creating an on-going dialog with a broad audience of interest.

The opportunity to have a conversation with your customers, employees, investors and the media is why blogs should be a corporate marketing/communication staple. But despite books such as Naked Conversations that extoll the benefits of blogging, many companies remain cautious is not outright dismissive. It will interesting to see how much energy Roese puts into the blog but his first two entries suggest he’s enthusiastic. If I could offer a constructive piece of advice, Roese needs to make his posts much shorter because the first two entries required some serious time to read.

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CitiGroup Upgrades Nortel

January 26, 2007

CitiGroup analyst Michael Genovese has jumped on the Nortel bandwagon by upgrading the stock to “buy” from “hold” while setting a target price of $35 from $25.

“There is an attractive restructuring and valuation story,” he wrote in a 23-page report. “Nortel plans to reduce about $1.5 billion in costs by the end of 2008. We expect EPS to turn positive in 2007 and grow about 140% in 2008 to $1.75, and with consensus at $1.52, we do not think the Street is giving Nortel the proper credit for the restructure. Nortel has a strong new management team in place and is increasingly focused on a few areas of potential growth including carrier VoIP/IMS, Optical, Ethernet, EV-DO, WiMax, and Enterprise voice and data.”
Genovese raised his 2007 earnings estimate to 72 cents a share from 35 cents, compared with the consensus estimate of 65 cents. “We believe Nortel’s restructuring is underappreciated by the Street and consensus estimates are too low,” he said. “As [gross margins] and earnings improve, we expect the valuation to move towards our target of 20 times 2008 EPS, or $35 per share. We expect revenue growth rate acceleration and continued margin expansion beyond 2008.”

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Nortel Looking for IP-TV Acquisitions

January 25, 2007

Minerva
LightReading must have some pretty good sources within Nortel these days. After writing about a speculated asset swap between Alcatel and Nortel last week, LIghtReading is reporting today that Nortel is planning several IP-TV acquisitions as part of an aggressive strategic focus on the telecom video market. “Nortel has revisited its IPTV strategy”, a source told LightReading, adding that Minerva Networks Inc. is the most likely first move for the giant vendor. In March, Nortel and Minerva signed an agreement to jointly develop an application interface that enables the integration of real-time IPTV services with Minerva’s iTVManager software. Update: Minerva was named one of the 2006 Fierce IPTV 15 earlier this year.

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Nortel Looking for IP-TV Acquisitions

January 25, 2007

Minerva
LightReading must have some pretty good sources within Nortel these days. After writing about a speculated asset swap between Alcatel and Nortel last week, LIghtReading is reporting today that Nortel is planning several IP-TV acquisitions as part of an aggressive strategic focus on the telecom video market. “Nortel has revisited its IPTV strategy”, a source told LightReading, adding that Minerva Networks Inc. is the most likely first move for the giant vendor. In March, Nortel and Minerva signed an agreement to jointly develop an application interface that enables the integration of real-time IPTV services with Minerva’s iTVManager software.

UBS on a Nortel-Alcatel Asset Swap

January 23, 2007

Amid speculation Nortel and Alcatel could do an asset swap (Nortel’s GSM business to Alcatel; Alcatel’s enterprise unit to Nortel), UBS analyst Nikos Theodosopoulos said in a report that while the deal reflects the growing belief Nortel will de-emphasize wireless in favor of the enterprise market, it’s unclear how a deal would be structured. The issue, he said, is that Nortel’s $2-billion GSM business has declining revenues, while Alcatel’s $1.5-billion enterprise business is growing by mid-single digits. As a result, Theodosopoulos believes Alcatel’s business is worth “several hundred million [dollars] more than Nortel’s so Nortel “may have to put forth additional cash/assets to close such a deal.”
That said, Theodosopoulos said an asset swap would benefit both companies by enhancing Nortel’s status as the leading vendor in the global enterprise voice market (increasing its market share to 22% from 14%), while Alcatel’s share of the GSM business would to 18% from 11% (Ericsson has 38%, while Nokia/Siemens have 32%}.

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What Nortel Must Do to Complete Comeback

January 23, 2007

Network World’s Jim Duffy, how covers the telecom beat as well as anyone, has an interesting story for anyone curious about Nortel’s comeback efforts. In an article called “Five things Nortel must do to complete comeback”, Duffy writes that Nortel’s customers, partners and analysts believe the company needs to:

– improve business relations with users and resellers
– rationalize its product line, which still appears to be “confusing and redundant”
– rationalize its lines of business to really become a rival to Cisco in the enterprise sector
– purchase or develop its way back into the IP core and edge router market
– work out a way to get bigger so it can compete with rivals such as Alcatel-Lucent

Nortel’s chief strategy officer George Riedl’s top five priorities are:
– Reduce costs or expand margin by $1.5 billion over the next several years;
– Transform the enterprise business;
– Drive next generation mobility around 4G wireless technologies;
– Build a professional services business;
– Retool the company’s brand awareness and go-to-market strategy

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Ontario Judge Approves Nortel Settlement

January 22, 2007

Time to turn the page on some of Nortel’s legal woes after Mr. Justice Warren K. Winkler of the Ontario Superior Court of Justice approved an estimated $2.5 billion settlement last weeks that resolves seven lawsuits in the United States, Ontario, Quebec and British Columbia over whether Nortel misled investors during two separate class periods. The decision follows the approval of the settlement in the two U.S. class actions last month by U.S. District Court Judges Richard Berman and Loretta Preska.
Under the settlement, Nortel will pay $575 million in cash and issue common shares representing 14.5% of its current equity, worth approximately $1.7 billion based on its current share value. The settlement also includes $228.5 million in payments from Nortel’s insurers. Nortel has also agreed to contribute one half of any recovery in existing litigation by Nortel against former senior officers (Frank Dunn, Dough Beatty and Michael Gollogly) who were terminated for cause in April 2004.

In approving the settlement, Justice Winkler said the settlement was “fair, reasonable and in the best interests of the class (of Nortel investors)” and provides “the maximum available amount for satisfaction of the claims in total, short of trial”.

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A Nortel-Alcatel Asset Swap?

January 20, 2007

If you believe in the adage “where there is smoke, there is fire”, LightReading reports there could be a deal on the horizon that could see Nortel swap its $2-billion GSM business for Alcatel-Lucent’s $1.2-billion PBX unit and possibly other assets such as cash and/or an enterprise-related unit. Lightreading suggests the deal makes sense because Nortel only has 7% of the GSM market – far below the 20% benchmark that Nortel CEO Mike Zafirovski wants each business unit to possess. If Alcatel got hold of Nortel’s GSM unit, it would have 17% to 18% market share, while Nortel would get a leading position in the European IP PBX market. Stay tuned.

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Zafirovski’s 15 Minutes of Fame

January 20, 2007

Is it just me or is Nortel and CEO Mike Zafirovski getting more than their fair share of media coverage recently? Along with Forbes, the Wall St. Journal and Barron’s, Canadian Business has done a feature story (“Inside the new Nortel”) on how Zafirovski is orchestrating Nortel’s turnaround. From a media perspective, Nortel continues to be a fascinating story because it’s big (30,000 employees, $10-billion of sales), it has a dynamic and high-profile CEO who’s made enough restructuring progress to be comfort talking about it, and its recent history is teeming with an accounting scandal and intrigue. Add all these ingredients together with a more-active effort within Nortel to court the media, and, in theory, you get some nice media coverage.

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Investors Digging Nortel

January 19, 2007

LocalTechWire’s The Skinny highlights the fact Nortel shares have jumped 30% since its reverse-stock split (10 for 1). While The Skinny concludes the stock is “no longer a dog”, analysts appear to be unenthusiastic with 24 of 33 surveyed by Thomson/First Call calling it a “hold”, while only six call it a “buy” and two a “strong buy”.

Obviously, the Ethernet supply deal with BT, which was recently announced, is a key factor but you have to wonder what else investors are excited about when it comes to Nortel. Are they finally buying into CEO Mike Zafirovski’s plan to restructure the company so it can become a leaner, more focused entity? Do they think partnerships with high-profile firms such as Microsoft and LG are going to Nortel an edge within a highly-competitive industry? And/or is Nortel stock just cheap compared with its telecom equipment peers.

More: Speaking of telecom equipment makers, Motorola is slashing 3,500 jobs, or 5% of its workforce, to reduce operating costs in the wake of disappointing fourth-quarter results. The company said the job cuts will save its about $400-million over the next two years.

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More Thoughts on Nortel-BT Deal

January 18, 2007

Duncan Stewart, one of Canada’s leading technology analysts, is writing his column again for the National Post. This week, he takes a look at Nortel’s recent contract agreement with BT and the prospects for provider backbone technology (PBT).

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Nortel Looking To Go Shopping

January 18, 2007

After spending the past year and a bit restructuring Nortel and dealing with its accounting troubles, CEO Mike Zafirovski says the company is “stable enough” to make an acquisition, according to a Reuters story. “”I am much more comfortable that we have a foundation in place right now within Nortel from an operational and financial processes standpoint,” he said during an interview, adding “we would not be gun shy from adding something to our portfolio, and actually we’re looking at some opportunities.” Mike Z.’s shopping list is focused on the enterprise, next-generation mobility and network services sectors. It would presumptuous to assume Nortel is going make a large deal given it needs to be careful about managing cash, as well as the fact the deals made during Mike Z.’s reign so far have been relatively small (e.g. $99-million for Tasman Networks).

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TD’s Thoughts on the BT Deal

January 17, 2007

TD Securities analyst Chris Umiastowski has some thoughts on Nortel’s recent Ethernet supply deal with BT, which he believes is worth well under $100-million.

n our view, this win with BT is more psychologically important than financially material. Nortel has driven the development of this new flavour of Ethernet, and is clearly now seeing success with a major Tier 1 carrier. This is encouraging, however the deal size is likely not material to Nortel. We believe the contract is valued well under $100 million (less than
the equivalent of 3 days of revenue). This technology could well create meaningful value for Nortel’s shareholders over time, and we show how it could add $4 to the company’s stock price. For this to happen the technology would have to gain widespread adoption and Nortel would have to gain significant market share. Nortel has done it before with DMS switching, OC- 192 optical technology, CDMA wireless technology and Passport in the ATM switching market. It could happen again.”

Umiastowski rates Nortel as a “hold” with a target price of $25.

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