Nortel Snags U.S. Government Contract

By Mark Evans | Published: July 31, 2007

One week, Nortel CEO Mike Zafirovski is nominated by U.S. president George Bush to an IT advisory committee, the next week Nortel wins a 10-year contract worth as much as $300-million from the U.S. Social Security Administration. You be the judge: coincidence or is there a pork belly-ish connection?

In any event, Nortel is going to lead the replacement of the SSA’s global telephone system with IP technology to created a converged data and voice network. It’s a huge undertaking given the SSA has 1,600 field office and 55,000 customer service agents.

This is the first major U.S. government contract for Nortel in a long, long time. The company has hoped to carve out more U.S. business with the purchase of PEC Solutions Inc. for $448-million. Then again, it’s difficult to tell how well Nortel is doing in this area given it doesn’t provide much “colour” within its financial statements in terms of where sales are generated.

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  • Read the RFP

    The SSA RFP has been kicking around for over 18 months. One of the reasons Nortel won was because of an SL100 that was required to stay in place while everything else was replaced. The win means that the SL100 will migrate to a CS2100 over time. Also, the virtual networking requirement (given the SL100) leaned more towards Nortel obviously.

  • Apple

    The question is, what’s the catch?
    There is the catch!
    $300 mill looks good, I admit.
    Nortel uses all tricks to show their contracts look better than they really are.
    I have seen 3 year contracts, I saw 5year contracts!
    Why Nortel did not report $3 bill contract for another 100 years?
    $3 bill looks even better!
    or why NT did not announce $30 mill value contract each year.
    I know about Nortel’s propaganda and I see that $300mill -10 year announcement was made to fool unaware investors!
    Just the simple math
    Nortel should post $1 bill contracts each and every month to just keep the current revenue levels!
    I don’t see such deals on Nortel.com web page.
    Does Nortel hide big contracts? //ironic/
    We are talking here not only about company but also about NT stock value and investing principles.
    Falling NT stock just after the announcement shows that investors saw the trick_ propaganda!
    NT stock 5 years chart shows that NT makes new low levels every year.
    If NT supports that pattern in 2007 we should expect NT below $19. S&P analysts said so long time ago!

  • casual observer

    Winning contracts has never been a problem for Nortel. Making a profit off them is an entirely different matter. My guess is they underestimate the scope, cost and schedule and end up paying for it by not turning a profit.

    Its ironic they would win a contract from the social security administration. I’m betting social security (and the US government) goes into fiscal crisis mode before the end of the contract and Nortel ends up getting paid little to nothing when all is said and done.

  • Harold Best

    This stock has been part of my portfolio for several years. However, I am becoming very concerned about NT as the price continues to drift downward since the reverse split. Can anyone provide us faithful followers with a reason to continue this downward journey. Give us something to feel positive about Mike. These contractual announcements are not enough!!

  • huh???

    contract win posted at both Nortel web sites

    http://www.nortelgov.com
    http://www.nortel.com/corporate/news/index.html

    how is this supposedly hidden?? not quite sure i understand some of the comments here about Nortel hiding contracts and propaganda……… anyone beside “apple” care to comment or should I just ignore these ramblings???

  • Not Observer

    To Huh,

    Apple is well know to make up all sorts of misleading information in support of his hatred against Nortel. Just like his comments on Monthly $1 Billion contracts. They simply do not exist at this level across the entire industry on a global basis. The entire industry may see 3 x $1 Billion contracts awarded in any year. Also, it is virtually impossible to WIN a contract of this size, deliver all the goods and recognize revenue all within 30 days. It just doesn’t happen, but it is an excellent attempt at creating FUD (aka BS) around Nortel.

  • huh???

    Thanks, not observer……..will keep this in mind when reading future posts.

  • Apple

    30 mill /year contract it’s not a big contract.
    That is what I tried to tell you.
    If you want to see big contracts go to
    csco.com
    alcatel.com
    Huawei.com
    Nokia.com
    web pages and you will see how NT is left behind.
    $19 bill BT contracts and NT got zero$$!
    How much NT got from $5 bill bsnl India lately? ZERO$$ contracts.
    BSNL required vendors to be profitable and NT has not been profitable for ages!
    BTW
    Yes, I am a dedicated critic of NT stock and sliding NT pps year after year proves me right year after year.
    How can you describe desperately optimistic posters who hype NT year after year and they are always wrong? Many of them are just naïve, not educated investors but you can find misleading posters_crooks who have been hyping NT for 4 years all the way down from $85 in Feb 2004 to current $21 and they accuse me of misleading. What a joke!
    To show you that I am a positive poster about good stocks I have been using my ID for the last 5 years.

  • jayemmay

    APPLE’s comments seem very sensible to me. First, $30 Million a year is not huge. Second, what part of the $30 million a year does Nortel receive? The Nortel team for this contract consists of these companies: General Dynamics, Black Box Network Services, Shared Technologies, AT&T, York Telecom, High Wire Networks, NetIQ and Pal-Tech.

    I presume that the $30 million is shared among all in some manner. How much goes to Nortel?

    Still, it’s a worthwhile contract award.

  • Not Observer

    Jayemmay, Nortel was awarded the contract as the Prime Contractor. As such, they receive 100% of the revenues. They are then obligated to pay the sub-contractors as a Cost of Goods Sold. These cost payments are then reflected as part of the Gross Margin in the deal.

    Nortel, nor any of their competitors, provide Gross Margin details on specific deals. However, Mike Z did say in today’s conference call that the Enterprise business contributes greater margins than their Carrier business. The combined/average Gross Margins are around 41% so that is the basic assumption that can be used for the Gross Margin for this deal.

    Also, in long-term deals like this it is very common to have most of the revenues recognized in the first half of the contract. This is because most of the hardware and integration services are completed early, with the later parts of the contract related to ongoing support. What this means is that it is highly unlikely that revenue will be recognized on a flat-line $30 Million per year.

    For an Enterprise account, this is a substantial contract.

  • Spotticus

    Apple,

    Nortel did win back into the BT 21st Century Network (there was a carrier ethernet announcment earlier this year). As for BSNL, Nortel didn’t bid for the current round of deployments. Yes the BSNL contracts are for a massive number of lines, but the margins are razor thin

  • Apple

    BT distributed $19 bill contracts to preferred vendors.
    Nortel is not on the list. End of the story.
    CEO B Owens admitted, that Nortel did not have anything to offer at that time/ no products/
    Lets talk about your misleading assumption that NT is equal partner_vendor with other preferred BT suppliers.
    You don’t think about $5 mill contract NT got for call centres on 3 continents, do you?
    /plain tickets will cost more than that/
    Can you be more specific about your optimism?

  • http://www2.nortel.com/go/news_detail.jsp?cat_id=-8055&oid=100213276&locale=en-US Spotticus

    Apple,

    Please read what I said. Nortel won back into BT’s 21st Century Network earlier this year. Yes Nortel struck out with the initial announcements, but BT like many carriers are starting to find that MPLS doesn’t scale well into the edge and are looking at alternatives like Carrier Ethernet (PBB, PBT). You can read the announcement yourself
    S

  • http://www2.nortel.com/go/news_detail.jsp?cat_id=-8055&oid=100213276&locale=en-US Spotticus
  • Apple

    http://www.convergedigest.com/searchdisplay.asp?ID=20364&SearchWord=21cn

    PBB-TE is currently progressing through industry standardization within the IEEE 802.1 Working Group. PBB-TE promises to bring control to data paths within very large carrier networks.

    =============
    Does it mean trials? I think so.
    What about $$$ value?

  • The psychiatrist

    spitticus

    I should warn you that this apple individual is a repeat offender over on the Yahoo board and will post what he deems accurate although has been corrected many times by other members,just like you had to correct him on the BT contract.

    “BT distributed $19 bill contracts to preferred vendors.
    Nortel is not on the list. End of the story.”

    end of story- I wouldn’t be surprised if you find yourself losing patience with him down the road.

    He only sees and hears what he wants to see and hear.

  • Spotticus

    Thanks Psychiatrist I’ll keep that in mind

  • Apple

    Mark, let me address The psychiatrist.

    What do you want to correct in my posts?
    Talk about NT and the message not about the messenger.
    Everything I have written is proven to be true; proven by NT stock price declining in last 4-5 years. Today it’s new all time low/ as I remember it… my opinion only…haha
    Don’t you think you need your clock cleaned by a real doctor?
    You have been pumping that pos stock all the way down since I remember….
    Use your own medicine you prescribe to others and you will see you needed it the most!
    Why you are not ashamed of being so WRONG so LOOONG about NT?
    I suspect it is your job to pump NT….no matter what….

  • Spotticus

    Well Apple, you said that Nortel isn’t on the list of suppliers to BT’s 21st Century Network, I belive the direct quote was “end of story”. As you’ve now admitted this is incorrect, there is in fact a story. Nortel is now supplying gear into BT’s 21st century network. Maybe it is trials, maybe it isn’t, truth is, neither of us know as the specific details have not yet been announced.

  • Ken

    Apple much of what you say is either wrong or very misleading. Just look at what you wrote above:

    “Everything I have written is proven to be true; proven by NT stock price declining in last 4-5 years. Today it’s new all time low …”

    Yes the current stock price is lower then what it was 4 years ago but its much higher then what it was 5 years ago. You picked a specific range of dates when the stock skyrocketed as a result of bad financial statements. Since then the price has gone down, again as a result of the bad financials which caused Dunn to be fired, restatements, the lawsuit, and the fines. We are now at a point where the rise/fall associated with the bad financial statements seems to be pretty much over and if you exclude it you will see the stock is up by a significant amount. Case in point I purchased my stock around 6 years ago and right now its up well over 300%. And yet your saying the stock is at an all time low…do you get my point?

    If in the next couple of years the stock continues to decline (not associated with the market direction) then that will be a good outlook for how Nortel is doing. But using a specific period where the stock jumped up/fell to show how that proves your point does nothing other then prove how you use bogus information to mislead people.

  • Apple

    Guys
    5 years is looong enough to know that NT stock is POS.
    NT stock started to climb up on false revenues and profits reported in the years 2000-2003
    You have to remember that NT restated more than $3.5 bill in revenues in that period with profits just reversed to losses and another $1.5 bill in 2005-2006
    Some posters here think_discovered that NT restated numbers in 2006-2007 as well /quietly/
    in conclusion
    There is nothing to be proud that NT all time lowest level was around $4.30 /after the rev split #/ and that it climbed up to $85 in Feb 2004 on false profits and fake bonuses.
    There is nothing to be proud of for reporting false Q2 2005 Triple Profits to fool new investors, is there?

  • Ken

    The charts on Yahoo show NT has significantly outperformed the S&P, Nasdaq, and Dow over the last 5 years. Any stock that outperforms all the major indexes can’t be called a POS.

    I doubt anyone is proud of the false reporting that happened (did someone ever say they were?). Its good the company found the mistake and terminated the folks responsible but I’m still pissed off it happened in the first place. I thought that’s why corporations had boards and had their books audited by independent auditors to prevent that kind of crap. By manipulating the books they wound up hurting the company image and really put a drag on the stock price. I’m still happy with my 300% but I figure it would have been 400-500% if not for the ex-CEO’s creative accounting scandal.

  • Apple

    The charts on Yahoo show NT has significantly outperformed the S&P, Nasdaq, and Dow over the last 5 years. Any stock that outperforms all the major indexes can’t be called a POS.
    Ken
    re
    Are you holding the chart up-side down?
    I became a critic of NT stock the day Nortel’s accounting frauds were made public in March 2004.
    Check the PPS again!
    It’s $1.75 presplit and you should forget the Price going up to $8.50 on false numbers reported quarter after quarter!
    ==============
    Well Apple, you said that Nortel isn’t on the list of suppliers to BT’s 21st Century Network,
    Spotticus
    re
    That is correct.
    NT is not on the list of preferred suppliers for 21st .CN..

  • beenwatchingthisone

    This award was overturned today per the GAO protest by AT&T. Not sure what this will mean yet, but at the very least it will be re-evaluated. No details other than a “Sustained/Approved” status on the website for both protests lodged by AT&T.

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