TD’s Thoughts on the BT Deal

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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