UBS: The Future Ain’t Bright

By Mark Evans | Published: April 8, 2008

Citing lower enterprise sales growth, UBS has reduced its 2008 to 2010 revenue and EPS expectations for Nortel, while dropping its stock target price to $8.80 from $11.

“We now model Enterprise segment revenue growth of 4% for 2008-2010, down from 5% previously,” UBS analyst Nikos Theodosopoulos said in a research note. “We believe an overall challenging environment in IT spending is likely to impact Nortel’s Enterprise segment, though exact magnitude of impact remains unknown.”

A far more damning comment, however, was Theodosopoulos’ contention that UBS remains “unconvinced that Nortel’s current broad-based strategy of servicing Enterprise and Service provider customers, across wireline and wireless segments, is indeed the best strategy for the company. We believe in order to succeed Nortel needs to be focused on those areas where it can be a meaningful contender, which in our opinion are likely Enterprise and Optical.”

It may be a quiet roar right now but there seems to be increasing questions about Nortel’s strategic direction within the analyst community. After more than two and a half years of Mike Zafirovski at the helm, impatience appears to be setting in.

The question that must be asked is whether Nortel’s situation would be any different if different directions would have been taken other than cutting costs and refreshing the senior management team.

If you were Mike Z., what would you have done differently?

More: UBS’ EPS estimates for 2008 and 2009 are $0.34 and $0.5, respectively, down from $0.36 and $0.60, with operating margins of 6.4% in 2009, down from 6.7%. It now estimates revenue growth of 0.9% and 1.1% in 2008 and 2009, compared with 1.3% and 1.5%.

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    Just what I thought..no comment for a nobody.
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  • plastered
    ex-nt.
    Your answer is "very crappy".
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    What does the terminated employee get these days?
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  • NoTellNetworks
    bang on. new hires are being laid off. good designers are laid off. managers are demoted to do design. uselss senior people who do nothing but are kept around. so called team leaders who just sit around. managers who fake what is happening to show they are extremely busy which goes up the chain by the way.

    when the cuts take place management myseriously moves days before or by some miracle are able to move with the directors in a few days. its is a revolving door policy that reads Out to leave and (Shit) In to enter within minutes. the good ones kept out permanently.
  • plastered
    What are the packages like now at nortel?
  • ex-nortel^2
    [...]The good old boy network is alive and well in Nortel, [...] useless employees that aren't team players [...]arrogant egomaniacs. [...]

    Boy, do those words ring true in my memories.
  • Yeah, the conspiracy is within the company, where you have first line managers not being held accountable for their actions. Nortel needs to clean house and get rid of those old farts who are running their support folks into the ground. The good old boy network is alive and well in Nortel, because managers will not get rid of their useless employees that aren't team players because they are arrogant egomaniacs. I've seen several smart, passionate individuals, that loved to provide the best customer support to Nortel's customers just up and quit, because they just could not stand the insane and incompetent way Nortel was managing their resources and implementing their solutions.
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    Is there a conspiracy out there amongst analysts covering Nortel. Just as they get some momentum, with lots of News Releases about deals and CTIA these analysts (probably getting kick-backs from Cisco) have to ruin the party. It happens everytime there is some positive momentum in Nortel.
  • The Psychiatrist
    If I were Mike Z and out of the multiple choice you have listed- focusing on cutting costs makes the most sense,because it's the one choice where they have the most control over.

    Trying to grow Nortel's revenue by way of an acquisition is one thing,but if there are currently no potential aquisitions that make sense either financially or strategically,then at least Mike Z can continue to improve on Nortel's Business Transformation Plan,and by doing this will enable him and his team to further identify remaining areas that need either more focus or a change in strategy as the fine tooth comb makes its way throughout the entire organization.

    All this while continuing to scout for potential aquisitions that wouild make sense for Nortel's longterm stability clearly is the best strategy as Nortel continues on through completing their BTP.
  • moosebump
    Yet another analyst with the same advice. Despite being the consensus opinion of analysts (and bloggers!), the advised strategy is probably no better than the course Mike Z is taking. The idea that Nortel is spread too thin, not focused enough, trying to be all things to all people, too small in wireless, etc etc has become the popular refrain for analysts who see the stock price going down and want short term action to turn it around. Analysts read each others reports and jump on the same bandwagon. Its an easy theme to grab onto when the stock is falling... "Mike Z must be doing something wrong! I don't have a clue what the problem is so I'll just jump on the same train as everyone else!"

    What would these people do if they were really running the company? There is a saying about teachers... "those who can - do, those who can't - teach." We need a version of this saying for analysts!

    Personally I like to see management ignoring these guys. If management listened to all this noise and felt compelled to go out and buy something, sell something or merged with someone, I would suspect they were doing it under duress. As long as they appear to be focused on their long term goals the stock price will take care of itself.
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