Mike Z. Still Bullish

By Mark Evans | Published: November 19, 2008

Analysts and investors may be down on Nortel’s prospects but CEO Mike Zafirovski continues to believe the company can execute a turnaround.

In an internal memo obtained by Reuters, Zafirovski encouraged employees “work to drive down costs and drive up sales” and “understand the realities of a tough marketplace, but use them to seize share and have faith that we will succeed in the end.”

Zafirovski added that he believes “Nortel can be a strong partner for our customers today and for the long-term”, and it is buoyed by having “leading innovations and solutions ahead of the market and people who know how to deliver the business value our customers need”.

While talked about Nortel becoming a leaner, more streamlined company, one of the big questions facing Nortel is how leaner and streamlined it needs to secure a cost structure that makes it viable. This includes the issue of whether cutting 1,300 positions is deep enough.

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  • Nortel watcher

    I disagree that one of the big questions facing Nortel is their staff numbers and cost structure. It has been clearly established by contributors to this blog and some industry analysts that Nortel cannot lay off more people and actually is behind in getting prior layoffs out the door because it cannot afford to pay the severance costs.

  • Tired

    “It has been clearly established by contributors to this blog”. Are you serious?

  • Should Have Sold in Feb 2004

    Well at least someone is bullish. The top bloggers on this site (see them listed on the right) are all Nortel bashers! Nortel stock price is at a ratio .03 of revenue, while industry is around 2.0 and sector is at .7. The negative bloggers are killing Nortel stock price and could end up costing 30K jobs and billions of investor's money. Thanks protophere, yes4appl, Desk Jockey and the self righteous broadbandbill!

  • lobk

    The bloggers?

    If you haven't noticed Nortel hasn't been doing to well in selling its product. That is poor management, poor product, and poor support. The price of the stock is an iddication of the company's performance. Not because of bloggers. If you want someone to blame how about Mike Z and his exec team.

  • seeker

    Exactly that's seems to be the case. If not, in this environement, they would not be behind in cutting jobs;1200 not done from previous annoncements + only expecting 300 to go before the end of the year from the 1300 they just annonced.

  • seeker

    If he is so bullish why don't he buy some shares at this level ! None of Nortel directors are buying the stock(look at the insiders transactions you will see only sales !!!)

  • Constantine

    sorry, you should have said BULL$HIT

  • Tongue.In.Cheek

    Let's call it out simply and clearly. It doesn't matter what Nortel does as they will always be wrong in the eyes of those that want to see Nortel fail. Anything they say, anything they do will be twisted and manipulated on this blog for the purpose of bashing the company, the executives and the employees.

  • Tired

    I'm sickened by some of the BS coming from some of the people who post on this site. Making up news, pulling predictions out of their assholes. TIC – there's seemingly very little to feel positive about right now, but the overt negativity from many people here is sad. I don't care if I'm in the minority – I hope that Nortel turns this around and becomes as significant in the industry as it once was.

  • broadbandbill

    Dude,

    I can tell you are not a Nortel employee based on your lack of logic. Here’s some logic for you, please forgive the self-righteous nature of the same:

    1. The WSJ did not bring Wall Street down; the supper-greedy megalomaniacs on Wall Street did that all by themselves.

    2. The New York Times had nothing to do with the worst popularity of a president, ever; the idiot in the White House and his cronies did that all by themselves.

    3. The auto-worker unions did not bring Detroit down; the idiots building Hummers, Escalades and 19 other gas guzzling ‘models’ that are not selling brought the industry down all by themselves. (Note: they should have built 3 models that sell). Get the point?

    My spot-on bashing of Roese (a rookie), Flaherty (a marketing process gal), Hackney (a pre-rookie), and yes, Mr. Z. himself (a very stubborn rookie-CEO) did NOT bring Nortel’s stock down; they did that all by themselves.

    But, I NEVER, EVER BASHED NORTEL AND ITS EMPLOYESS!!!!!! Besides, you think anyone outside of this small community even listens to us? Trust me, no one cares out there; the ones that still care are the very ones you are criticizing. Besides, doesn’t your user name (Should Have Sold in Feb 2004) imply you too are a Nortel basher? How’s that for logic…—bb

    PS — Time for motivational speeches has long passed; in fact, at this point they are both counter and contra-productive.

  • broadbandbill

    Tired,

    Hope only works in a lottery, need a plan (and not 'plan de jour” ) and execution by people that know what they are doing….–bb

  • protosphere

    Not everyone seems to share this CEO's optimism, and I would be that much ,more skeptical given his 3 to 5 year turn around plan, 20 dollar buying opportunity, single digit growth, or that it will ever be a great company again as the following article posted today makes me wonder if it ever has been.

    http://www.theglobeandmail.com/servlet/story/LA…

    The way it's going for Nortel, maybe it's time to turn out the lights

    FABRICE TAYLOR
    Fabrice Taylor is a chartered financial analyst. ftaylor@globeandmail.com

    November 19, 2008

    Analysts are starting to say so and even Nortel's accountants admit it: The company is worthless. Why does it still have any market value left?

    RBC Dominion Securities Inc.'s analyst cut Nortel's price target to zero last week. He called his report “The last one,” which kind of sums it up. That downgrade came on the heels of another bloodletting quarter: Nortel lost another $3.4-billion (U.S.) in the third quarter and is down $3.7-billion for the year so far.

    Although Nortel has $2.3-billion in cash, it's burning through it with a flamethrower; $820-million has disappeared so far this year just in operations. The company, according to RBC, needs a balance of $1-billion to keep the lights on and $500-million for a Chinese joint venture, so the cushion is shrinking fast.

    Nortel's accountants, meanwhile, say the company has no value. The balance sheet lists assets of $11.6-billion and liabilities of $11.8-billion. If you strip out the goodwill, as you probably should given the fact that it gets hacked down in writedowns practically every quarter, the company's net worth is negative $2.5-billion. To think Nortel's market capitalization was once $370-billion.

    There are other analysts and some investors who think Nortel will survive. It's hard to say who's right, but it's easy to ask “who cares?” The truth is that this company has never really made any money. Nortel's accumulated deficit, basically the sum of its bottom lines over time, is $40-billion to the bad. Okay, a lot of that is a direct result of the company's artificially high stock price, which resulted in goodwill writedowns.

    But the cash economics aren't much better. Going back to 1993, which is as far back as I could find annual reports, the company has cranked out $6.1-billion in cash from operations but had to spend $9.3-billion on investments in equipment and other assets (these are probably rough numbers given the countless restatements the company has endured but they'll do). So there's no cash for investors. Over that same period, Nortel's total depreciation was $23-billion, so it hasn't replaced its physical assets. It's been shrinking fast, not surprisingly.

    What is a little more surprising to the casual company watcher is how much the company trades. Over that same almost 16-year period, Nortel has sold more than $8-billion worth of investments or businesses and bought about $3-billion worth (these are just the ones the company paid cash for; there were far more acquisitions made with stock, especially during the company's supposed heyday). Again, the company has survived partly by selling pieces of itself to pay its bills. Does that sound like a good investment?

    What's most alarming about Nortel is how little return it gets on its research and development. The company has poured almost $11-billion into R&D since 2003 alone, and yet its revenues haven't really grown and it's compounding its losses. Nortel's latest restructuring, in sharp contrast, will cost $130-million and save $190-million every year. In other words, the company's return on investment when it shrinks toward nothingness is more than 100 per cent, while it barely stays in place when it invests for growth. Doesn't that imply that it should just shut the doors and pay everyone off?

    That's not going to happen, but even in a fantasy world where the board opted to do so, what would investors get? Probably nothing. Nortel is trying to sell off assets to stay alive now. It's not going well and it probably won't, given the state of the world economy. And there may be some hidden liabilities in the mix. RBC points out that Nortel's pension plan was underfunded by $1.1-billion at the end of 2007. A little more than half of the $8-billion plan was invested in stocks. Hopefully not Nortel, but still, the drop in share prices implies that the shortfall could more than double.

    Nortel may have good people, maybe even a good CEO, but as the old saying goes, when good people meet a lousy business, the business wins.

  • NewToNT

    As an employee who listened in on an internal Mikey Z global pep talk (which didnt work!), I can confirm that this is the case. MZ pretty much said that the BoD were pushing for deeper cuts but he held back, as we simply could not afford them. As well as the 1300 announced, they still have to get through the 1200 announced previously!

    As you can expect, we were all hugely motivated following the pep talk!

  • protospherevsbroadbandbill

    ” Analysts are starting to say so and even Nortel's accountants admit it: The company is worthless”
    What Nortel accountants does this article refer to?
    Is this your full time job posting articles about Nortel on AAN and Yahoo Finance proto?
    Do you consult with your buddy Broadband Bill? I think he is getting a little jealous that you now have more posts them him even when you take into account his “10th last” time he has commented since his “final post” several weeks back.

  • protosphere

    CEO bought around a $1M worth at around $19 (Aug 2007), not that long ago
    Then averaged down with around $500K around $7 (months later) AKA-catching falling knife
    (average price around $11)

    Today, at around 50 cents today, That's a nickle extreme 10X reverse split, and bare in mind they already near folded at 43 cents. This was before the fraudulent formal financial statements that claimed a whopping $750M profits than zero (for bonuses they still keep btw) to rally as the highest traded stock on the TSX with a cap larger than our largest company (the RBC), trading at a whopping bogus 47X P/E! The endlessly delayed numbers were recounted so many times thereafter, worse every time, worse by the week in the downplayed mega revisions that doubled estimated and only after the the ultimatum settlement, it is lucky it trades at all. It is also lucky it went on to print so many billions of Nortel paper under safe harbor/benefit of the doubt with their political, social, and economic power, with loopholes closed thereafter.

    Endless puns surround this laughing stock and to think Dunn an accountant or this green team and their pals lead such a large number of stellar technical academics is profound. At least Owens stabled the ship in silence amid the turbulance of scandal before he abruptly departed and before they paid a premium for a green and in telecom first time CEO who defrauded his ex employer who passed him by violating a written contract signed on several different before joining a company struggling to regain credibility. So much for credibility amid the endless contradictions and what did he say recently? Did he expect anyone to take anything he says now seriously?

    Nortel is one big money losing make work hobby farm and I am not sure how active the hobby farm is or that it is such a stellar training ground for our grads any more. This CEO has endlessly contradicted from day one enough to make it comical, driven by opportunity or what Nortel fed him, I dunno, but Murphys Law in forecasting may prove the ultimate contrarian indicator here. Perhaps he would have done better resigning and shorting this stock with everything he had. =)

    heh, ya, CEO can get sround 20 times the number of shares relative to what he paid for them in today's price. Dare he average down again to look like a fool or would it show relentless unrepentant confidence as he displays today =)

    This gives a whole new meaning to bullish doesn't it. =)

  • less

    This all sounds vaguely familiar: “The paltry twelve Nortel hatas and their biased opinions at ANN are soooo beyond irrelevant. But they are in fact driving the stock down by influencing the minds of thousands of potential stockbrokers with blatant lies and deceit. Death to AAN. “

  • broadbandbill

    If you are counting my posts you need to get a life; a real one at that. And be a man, don't hide under someone else's usernames; otherwise I will assume you are Hackney…–bb

    PS – there has neve been any contact between Proto and myself!

  • protospherevsbroadbandbill

    11th last time?

  • Observer

    Ah another interesting thread… How come no one blames Chambers for a falling/stagnant stock price for well over 6 years now and down 50% since the peak of the bull within the secular bear. You people need to learn what a secular bear attack really is. I agree with the last paragraph that Fabrice Taylor states, except I would replace business with 'economy' or 'secular bear market'.

    Given the right market conditions, Roese, Flaherty, et al would have been successful. Given the wrong market conditions, they aren't. See how timing works ? One can never mistake success or lack thereof for timing . Even the great John Chambers announced a ~20% cut in forecast and no visibility for 2009. What happen !? Where is the outrage !? LOL

    A lot of folks here just need to chill out and realize that things will recover as deflation takes hold. Prices on all sorts of things will have to fall as money now replaces credit. Some companies will go out of business or be acquired for pennies on the dollar.

  • seeker

    AAN opinions are driving the stock down ? Ah ! Ah ! Ah ! Well talking about someting irrelevant ! I guest everybody has a good laugh here …… and could not care 'less' !

  • Observer

    But, I NEVER, EVER BASHED NORTEL AND ITS EMPLOYESS!!!!!!

    I have to call Bull$hit when I see it. Roese, Flaherty, Z and even Hackney are all employees and you've continuously bashed them. I have no doubt you would bash other employees. You can blame whomever you want but I will maintain that the bad economy is what is causing this. 2 months ago in September Mike Z was scoffed at by other telecom/networking execs when he said the slowdown was going to impact business significantly. A month later Cisco cuts forecasts by almost 20% and others follow suit. Nortel has always been a leading indicator for the overall economy. Simply put ,the overall economy, like Nortel, never really recovered that much from 2001-02 as most GDP globally was a case of easily available debt/credit and not earnings/income. That is now plainly obvious as GDP falls below zero in almost every country across the world and forecasts get shredded. The fun is only truly beginning and Z's forecast back in September proved to be a lot more correct than most leaders in the industry would like to admit.

  • Observer

    It looks like Z was ahead of the curve compared to others…
    –
    Nortel CEO Mike Zafirovski said top executives of some large phone companies actually chided him for a bleak forecast he issued in early September, saying he was overstating the industry's problems.

    “Within two or three weeks some the CEOs or CTOs have called up to say, 'Gee, on second thought, we are taking costs down as well,' ” Zafirovski said Monday after the company's third-quarter results came out.

    http://www.marketwatch.com/news/story/vise-tigh…

  • Observer

    AP
    Sector Snap: Soft economy hits media, cable cos.
    Wednesday November 19, 1:51 pm ET
    Media, cable and telecom companies' latest quarters hit by soft economy, 2009 seen as weak

    PHILADELPHIA (AP) — A slowing economy took its toll on media, cable and telecom companies in the July-to-September quarter, but an analyst said that while media performed “a little worse than expected” and telecom growth slowed, cable operators seemed to be more recession-resistant than the rest of the pack.
    Citi Investment Research analyst David Hamburger said among media companies News Corp. in particular fared worse while Walt Disney Co. showed some signs of slowing as well.

    In the first fiscal quarter of 2009 ended Sept. 30, News Corp. posted weaker-than-expected TV and film results and said it expects operating income to drop at a mid-teen percentage for the year. That compares with the 5 percent growth the media conglomerate had expected at the end of the second quarter.

    But Hamburger noted that News Corp. has a strong balance sheet and conservative management team. He has a 'Buy' on its 6.65 percent debt issue due 2037 with a spread of 482 basis points.

    Disney's fiscal fourth quarter, which ended on Sept. 27, softened as well. In particular, the broadcasting division's loss widened to $150 million, driven by weakness at the ABC television network and lower ad revenue at its TV stations. Also, forward bookings at its theme parks and resorts were down 10 percent.

    In cable, Hamburger recommended buying Time Warner Cable Inc.'s debt issue that pays 8.75 percent because it's trading at a 504 basis point spread and “we believe investors are well compensated for higher leverage.”

    Major cable operators have been generating robust free cash flow growth as a result of prices increases, subscriber growth and lower capital spending.

    The credit analyst also noted that Charter Communications Inc. and Mediacom Communications Corp. posted “solid” third-quarter results as consumers signed up for digital cable TV and high-speed Internet services at higher-than-expected rates, offsetting slower growth in phone sign-ups.

    In telecom, Hamburger said Sprint Nextel Corp.'s third-quarter results were worse than expected. He expects the wireless phone company to continue to lose market share as AT&T Inc. and Verizon Communications Inc. compete aggressively.

    However, Sprint paid off $2 billion of debt in recent months and amended its revolving credit facility terms — alleviating liquidity concerns in the near-term.

    Prepaid wireless companies Leap Wireless International Inc. and MetroPCS Communications Inc. showed continue growth in their businesses, though at a slower pace.

    Telecom equipment supplier Nortel Networks Corp. also didn't escape the slowing economy's grasp, with third-quarter results pointing to a weakening trend in its industry. The Canadian company is slashing 1,300 jobs and freezing salaries to save about $400 million in 2009.

    Shares of News Corp. fell 22 cents, or 3.2 percent, to $6.66 in midday trading. It hit a new 52-week low of $6.58 earlier in the session. Disney was down 20 cents to $20.47.

    Charter fell 6.2 cents, or 21 percent, to 23 cents. It hit a new 52-week low of 12 cents intraday. Time Warner Cable Inc. fell 14 cents to $19.35 while Mediacom was down 30 cents, or 9 percent, to $2.99.

    Leap gave up $2.67, or 13 percent, to $18.33 while MetroPCS fell 41 cents, or 3.4 percent, to $11.59. Nortel was down by 6 cents, or nearly 10 percent, to 52 cents, rebounding from a 52-week low of 50 cents.

    http://biz.yahoo.com/ap/081119/media_cable_tele…

  • Tired

    I absolutely agree with you. But right now I have to hold onto my hopes all the same.

  • Tired

    I hope your comment is a reply to TIC and not me because otherwise you can't read. I may think that a ton of the crap posted on here is pulled of out of the darkness that is your head/ass, but I would never ascribe so much value to the comments of you and your ilk that I think it would have a real influence on the stock value.

  • exnt

    2009 is going to be a lean year for capex by businesses and operators. Nortel has a very negative profile. Almost no new products coming out in 2009. Likely Nortel will get little or no new business in 2009 and will have to survive on existing contracts and expansions to existing installations. Nortel has no strategy other than quarterly headcount cutting. Its gonna be nasty in 2009.

  • Should Have Sold in Feb 2004

    Do a Google search on Nortel and THIS site comes up near the top. When people buy stock, they usually do some research…same goes when you want to travel…you check out something like Tripadvisor.com.

    To say that this site has little or no impact on NT share price is absolutely INCORRECT!

  • Sector6Drone

    I believe you give this blog too much influence. It is an aggregation of news and opinion. It does not invent the news, though it may have posters that have opinions (remember, opinions are like <insert body part name here>, everyone has one.).

    If the only research someone does is to take the first link on google… well it says much about that person.

    The share price has more to do with Nortel's own quarterly reporting, scandals, products, actions and ranking within the industry, and how it fairs against analyst expectations.

    I think you are overestimating things greatly.

  • less

    Idolatry is a pretty lame human tic any which old way, but resorting to macho swagger to defend the “reputation” and “honor” of some large, foreign company with ones health, presumably for free, is, well…

  • less

    You'd think that the same folks who would argue that AAN hatas are ruining NT would admonish Observer that his rote spewing over this cycical, circular secular seven year bear thingy will be a self-fulfilling prophecy. That if he doesn't have anything nice to say about bears he should clam up.

    His depp objective analyses are needlessly depressing NT stock.

  • broadbandbill

    Joel,

    If it is good enough for Brett…

    You'll be happy to know I will be attending Betty Ford's Clinic this weekend, pray for me…–bb

  • broadbandbill

    Yo O,

    Though technically you are correct, there is a clear distinction between the execs (the three you mentioned) and Nortel’s employees; the latter group being the rank-and-file (and the suffering ones at that).

    And stop blaming everything on the economy; most of the mistakes were made two and three years ago when the economy was booming and globalization was everywhere. It is only that those mistakes are now coming due (lack of CDMA divestiture, horrible hires, lack of vision; had enough?). So, do not try to spilt hairs with me; I will only make you look foolish. — bb

  • Nortel watcher

    Yes Tired, as serious as a heart attack.

  • http://nortelinsider.wordpress.com/ Desk Jockey

    broadbandbill has not “bashed” employees and he has not “bashed” those others that you have mentioned. He has instead told the truth which seems to scare you because maybe you own NT and are worried about the pennies you have left.

    Fact: Roese was not a good CTO. His many misadventures are well documented and this is why he was asked to leave.

    Fact: Hackney is completely unsuited for the job and is only there because he is MZ's best friend. His brazen assault on a female student in the midst of a campaign of “integrity, ethics and honesty” followed by Mike Z's writing off of the incident confirmed this.

    Fact: Mike Z. has not led Nortel well. Just look at the market! Market is the collective vote of many people, not just the “haters” on this blog. While MZ has had an illustrious career at GE and had an impressive resume he did not fare well in the telecom world.

    Please don't criticize others for posting the truth because you own NT and have to pump it every opportunity. It is this very sort of ignorant behavior that has led to the unfortunate demise of NT.

  • broadbandbill

    DJ,

    Thanks, well articulated. Anyone tell you have a great future as a defense lawyer? –bb

  • http://nortelinsider.wordpress.com/ Desk Jockey

    Addendum: I missed one on your list.

    Fact: broadbandbill accurately predicted the departure of Ms. Flaherty even as NT propaganda machine was trying to dissuade us otherwise!

  • http://nortelinsider.wordpress.com/ Desk Jockey

    Thanks. I only try because I am fedup with the lies and endless repetition of half-truths from people who talk to us as if we are children.

  • less

    Zeeman effect: “The splitting of single spectral lines of an emission spectrum into three or more polarized components when the radiation source is in a magnetic field.”

    In lay terms: A black hole approacheth… better stovepipe the company…

    But as Mike Z and our French-Canadian neighbors affirm:

    “Zis is not ze end. Zkeptics have shape ze Zeitgeist ento a negative, a zero. We prefare ze global-poetic term “zilchissimo”. But any negativity is zratkska [=eastern Euro word for "ze crap"]

    And whan ze old zeal is renewed we wal zing past ze SSSiscos of ze world. Nigeria, then Zaire, Zambia, Zanzibar, ze old and new Zealands, even Zembabwe will come to do it Ze-mike-way.”

    Ignore Bab! All Bobs is ze matter of fact. Above all ze nay-bobs of negativism.

  • less

    Zeeman effect: “The splitting of single spectral lines of an emission spectrum into three or more polarized components when the radiation source is in a magnetic field.”

    In lay terms: A black hole approacheth… better stovepipe the company…

    But as Mike Z and our French-Canadian neighbors affirm:

    “Zis is not ze end. Zkeptics have shape ze Zeitgeist ento a negative, a zero. We prefare ze global-poetic term “zilchissimo”. But any negativity is zratkska [=eastern Euro word for "ze crap"]

    And whan ze old zeal is renewed we wal zing past ze SSSiscos of ze world. Nigeria, then Zaire, Zambia, Zanzibar, ze old and new Zealands, even Zembabwe will come to do it Ze-mike-way.”

    Ignore Bab! All Bobs is ze matter of fact. Above all ze nay-bobs of negativism.

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