Archive for the ‘Financials’ Category

Yet Another Restatement?

March 1, 2007

You had to know it was only a matter of time before Nortel restated its results again, right? Nortel and its principle operating unit, Nortel Networks Ltd., will restate their financial results for 2004, 2005 and the first nine months of 2006, and will make adjustments to periods prior to 2004. So, what’s up? Apparently, it has to do with third-party errors related to employee benefit plans and – surprise, surprise – timing errors on the recognition of revenue.

“This restatement has no material impact to our fourth quarter 2006 operating expectations or performance, ” said CFO Peter Currie, who’s leaving the company next month after abruptly announcing his resignation a few weeks ago. “During 2006, we have implemented significant remedial measures and other actions to address our internal control weaknesses. This has resulted in a substantial reduction of control weaknesses as at year end and represents a major milestone in our journey toward consistent, reliable and timely financial reporting.”

While the restatement is relatively minor, it’s certainly not a positive sign for a company that appeared to be gaining its footing again and more confidence from investors. Nortel said it expects revisions to its previously reported 2006 nine month results that will boost revenues and improvements in net earnings by about $24 million and $15 million, respectively. Its 2005 results will decline by $28-milion while losses will climb by $87-million. Revenue in 2004 will rise by $33-million while the net loss will increase by $42-million.


Q4 Looks Good

February 7, 2007

While cutting 2,900 jobs is far from positive news, Nortel also announced preliminary fourth-quarter results that surpassed the expectations of UBS Securities. Nortel said revenue will be $3.26-billion while gross margins will be about 40% – ahead of the $3.1-billion and 38.5% expected by UBS. In a research note, UBS analyst Robert Dennison said strength in CDMA and LG-Nortel joint venture likely accounted for the higher than expected sales in Q4. He said Nortel’s CDMA high-margin CDMA business likely helped gross margins.

Dennison is raising his 2007/2008E EPS estimates to $1.00/$1.86 from $0.66/$1.50 while increasing his stock target price to $28 from $26. “We expect near-term momentum in NT’s stock on the back of CDMA strength and ongoing cost reductions,” he said. “We remain concerned though on the outlook for 2008 when we expect high-margin CDMA revenues to decline substantially. We estimate CDMA contributed 80-90% of overall company EBT in 06.”

Update: The flurry of news over the past 24 hours (CFO Peter Currie’s resignation, the layoffs, the preliminary Q4 rsults) helped All Nortel, All the Time generate record traffic today (2,700 pageviews).

Nortel Restructures….Again

February 7, 2007

In apparently the final restructuring move and another sign it needs to get leaner and meaner to remain competitive, Nortel will slash another 2,900 employees over the next two years, while moving another 1,000 jobs to “lower-cost locations”. Nortel also plans to shrink its real estate portfolio by 500,000 sq. feet this year – a move that follows the $100-million sale of its sprawling corporate headquarters in Brampton, Ont. last year to Rogers Communications. When completed, the moves will save Nortel about $400-million a year: $300-million due to workforce reductions and $90-million related to real estate.

“We are transforming Nortel, and are focused on building a highly competitive organization that drives innovation and profitable growth,” said Nortel CEO Mike Zafirovski, who added the company will maintain its “industry-competitive” R&D spending at 15% of revenue.

It’s another interesting and probably necessary decision – and you wonder if there is any link between it and CFO Peter Currie’s decision to resign yesterday. Clearly, Zafirovski realizes Nortel can’t be competitively viable if its operating costs aren’t reduced. The question is why now as opposed to six months ago? Another way to look at it is Nortel has little choice but to reduce costs if it wants to remain a stand-alone entity – whereas competitors such as Alcatel and Lucent are trying to do it through consolidation and cost synergies.

Update: For more, check out Local Tech Wire, Blogging Stocks and The

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Trapeze Considering IPO

January 3, 2007

Trapeze Networks, which generates a lot of revenue from an OEM relationship with Nortel, could be considering an IPO in 2007. According to a LightReading story, the enterprise Wi-Fi start-up could be following in the footsteps of rival Aruba Wireless, which has filed for a $100-million IPO. If Trapeze does go public, it could see the company build out its own brand sales, which could see fewer sales of Nortel gear. Of course, it wouldn’t be all bad new for Nortel, which took part in Trapeze’s $30-million D round investment earlier this year in a deal that also included Juniper. Nortel also made an investment in 2005 when Trapeze raised $22.5-million . Before Nortel got involved with Trapeze, it used to rebrand and sell equipment from Airespace Networks until the company was purchased by Cisco for $425 million.

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Nortel’s WiMax Dreams

January 1, 2007

By now, everyone knows Nortel is counting on WiMax as a key strategic pillar. For more check out an interview with Peter MacKinnon, general manager of Nortel’s WiMAX business unit and chairman of the LG-Nortel joint venture, who said his team lobbied to increase the WiMax-related R&D budget to $50-million a year from $25-million in 2006. It doesn’t seem like a lot of money but it’s not bad given Nortel CEO Mike Zafirovski has made it clear Nortel needs to reduce its total R&D budget.

It’s All Over but the Paying

December 27, 2006

Nortel moved a major step forward in finally putting its accounting scandal behind it after two U.S. judges approved a $2.25-billion class-action lawsuit settlement. U.S. District Judge Loretta Preska said the global settlement reached earlier this year is “fair, reasonable and adequate” to compensate people or entities who bought common stock or sold options on Nortel stock between April 24, 2003, and April 27, 2004. U.S. District Judge Richard Berman said a similar deal reached on behalf of as many as 1.4 million Nortel investors between Oct. 24, 2000, and Feb. 15, 2001, is fair and adequate. The lawsuits involve allegations that Nortel executives, including ex-CEO Frank Dunn, cooked the books to trigger lucrative bonus plans.

EDC Still Backing Nortel

December 14, 2006


Export Development Canada’s support of Nortel is alive and well amid news Nortel has amended its master facility agreement to extend the maturity date of the US$750-million facility for an additional year to December 31, 2008. This includes the existing US$300 million of committed support for performance bonds and similar instruments.

The Kings of Cash

December 13, 2006

Motley Fool has a story called the “Three Kings of Cash”, looking at companies (Qualcomm, Garmin, Volcom) that generates lots of free cash flow. For Nortel watchers, one paragraph that stood out was this one:
“Unlike companies such as Nortel Networks (NYSE: NT), Blockbuster (NYSE: BBI), and (Nasdaq: OSTK), which struggle to keep the cash from gushing out their corporate windows, these companies have free cash practically flooding into them.”

The Week in Nortel

December 9, 2006

Nortel shares had a good week, climbing about 10% to close Friday at $22.54 in New York. It wasn’t the most newsworthy week with the highlight being Nortel’s decision to turf Deloitte & Touche as its auditor after a 92-year relationship.

Talking About Nortel

December 8, 2006

I have a weekly podcast with Kevin Restivo called Talking Tech. This week, we are joined by technology analyst Duncan Stewart to talk about Nortel’s decision to split with its long-time auditor, Deloitte & Touche, and what it means in terms of Nortel’s strategic focus.

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Breaking Up is Hard to Do

December 6, 2006

If you’re Deloitte & Touche, Nortel’s decision to end a 92-year relationship is no doubt painful – particularly in the old pocket book given Nortel paid Deloitte a staggering $81-million in 2005 for auditing and other services. According to the National Post, that accounted for more than one-third of the fees that Deloitte collected from the 100 largest companies on the Toronto Stock Exchange. Of course, no one should really be surprised by the high-profile divorce given Nortel was compelled to restate its financial results going back to 1999.

Nortel On Track for ’08

December 5, 2006

At the ITU Telecom World 2006 Forum in Hong Kong, Nortel CEO Mike Zafirovski said the company is still on track to meet its operating profit targets by 2008. “There is a commitment, there’s a path for us to go from a break-even, a loss position, to be a $1.5 billion operating margin company in 2008,” he told reporters, adding the $1.5-billion would be before special charges and interest expense.

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Nortel Boots Deloitte & Touche

December 5, 2006

Following a tumultuous relationship in recent years, highlighted by an accounting scandal, Nortel has turfed Deloitte & Touche as its auditor, although the decision “does not result from any disagreement or dissatisfaction”. Nortel’s new auditor is KPMG. Deloitte’s departure comes after it played a key role in fixing Nortel’s financial books that involved a multiple restatements. Of course, Deloitte was well handsomely for its services – picking up $72.7-million in fees in 2003 and $57-million in 2004.

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Nortel’s Ambitious Financial Targets

November 16, 2006

The financial guidance that came out of Nortel’s annual investor conference yesterday is the following: 13% operating margins, 43% gross margins, 10%+ revenue growth, and $1.5-billion+ in operating margin expansion by 2008. UBS Securities believes double-digit operating margins will be a challenge given the "touch competitive environment and Nortle’s absence in the consolidation wave". UBS said, however, it is "comforted by some examples of the progress the company is making towards its profitability goals and by the optimism and confidence exuded by the management team". UBS has a neutral rating on Nortel with a price target of $2.35. For more, check out the Globe and Mail, which has a story on Nortel’s strategy to boost margins. Tags: ,

Nortel Cited for Pension Deficit

November 15, 2006

According to the Globe & Mail (citing a Moody Investors Service report), Nortel is among the to 10 companies that has an underfunded pension plans. Moody’s said Montreal-based Alcan has the largest pension deficit, $3.1-billion, of the companies it rates, while Nortel and BCE Inc. had deficits of $2.9-billion and $2.4-billion respectively. Tags: , ,