Seeking Alpha’s Nortel Bonanza

Observer,

Excuses, excuses, excuses…

When the “World Classers” established their roadmap 2-3 years ago the global economy was booming. It is those early and huge miss-steps (bad hires, wrong strategy, stubborn convictions about retaining 3 different markets, etc. etc. etc.) that set the wrong course for Nortel and its subsequent and continued demise.

Had they listened to sound advice from top and friendly Wall Street power brokers telling them to do the right things, along with numerous industry insiders with equally impressive backgrounds and experiences and equally concerned about Nortel’ ability to operate in an increasingly competitive global stage in 3 different markets that lacked synergies (components, channels, margins, etc.) Nortel could have escaped the current economic crisis or, at the very least, used it as a good excuse.

Regrettably and very sadly, they don’t have that option; their precarious position is self-created. They can’t even articulate their vision: ‘What is Nortel?’ (Note: Global leader in communications is sooooooooo last century)…-- bb

We see how banks and other institutions on wall street have done so well by listening to those same top/friendly power brokers you refer to. I'd say things have worked out real well for the banking industry and overall economy..wouldn't you ? And if you seriously believe the global economy was booming 2 years ago, you seriously cannot see further than the length of your hand. The credit crisis was sowed in 2002-2004. It is now being reaped. Anyone who says, none of this was predictable just isn't that smart. Nortel's problems have more to do with not changing soon enough..say in 2001-2003 rather than waiting until 2006 to shift spending to future markets. I say any company that has 4 CEOs in 9 years is well on its way to demise regardless of what market they play in.

Observer,

Vision is never been my problem and I have pretty short hands anyway. I agree with you on the global crisis; that is not the core of the argument (or discussion herein).

Nortel should have DUMPED their entire wireless portfolio, which would have strengthen both their balance sheets as well as focus. That is what Wall Street analysts told them and, in this case, those analysts were correct.

Instead Nortel got a self-promoting yoyo that never had any wireless experience talking about WiMax, 4G and LTE. The blind leading…A better balance sheet (CDMA would have fetched a lot of money form PE firms two years ago); a sharpened focus on Enterprise (a good margins biz) and Metro-Ethernet (futures) would have put Nortel into a whole different position today. Now, they need to sell a key jewel and are setting the company for an acquisition or a ‘merger’. They had their chances and blew them all!

Got to know your limitations otherwise the competition will exploit them (and they are)…--bb

But the wireless portfolio was a cash cow...you never dump a cash cow until you've milked it dead. As I said, the issue isn't that they waited. They never had anything do replace the old gear with better performing, higher margin products in the wireless space. When you change CEOs constantly, there is no consistent investment and only continual program cancellations which is exactly what happen. Again the problem wasn't what happen after 2006. The problem was what happen before 2006. By then, it was already too late. Many blame the current management but I am not one of them. The real people to blame were the previous management and the boards. Maybe the current management did take longer to figure out the moves to make then they should have but I argue it wouldn't have mattered anyway. What was reaped between 2006 and now was sewn long before 2006.

Then let's blame Richard Nixon for the credit crisis. Also, you always dump a cash cow when it becomes clear it will become a cash pig, which was back in '06...--bb

A bearish structural factor bearing down on the US economy and equity market will be tens of millions of Boomers (retiring and being "retired" involuntarily) being involuntarily fired from employment at peak earnings, many of whom will never again earn anywhere near their peak earnings (and medical and life insurance benefits).

Boomers by the millions will be forced to draw down on assets (declining in value) at a much faster rate than they or most economists imagined in an attempt to maintain the Boomer consumer lifestyle.

Hedge fund withdrawals are occurring as many financial services types (hedgies, mutual fund mismanagers, bankers, etc.) are seeing their livelihoods and a large share of their net wealth evaporate at an alarming amount and rate. Private schools, private clubs, religious institutions, charities and not-for-profit entities, etc., are now being negatively affected by the meltdown in financial assets, including leveraged real estate.

The deleveraging/liquidation process is still underway for hedge funds and barely just beginning in the overall US and global financial systems.

The rally from SPX 741 to 896 was the obligatory bear market rally of ~20% (~$1.7T addition to market cap), so a correction of at least half that rally is quite common; but so is a test of the low or lower lows.

http://globaleconomicanalysis.blogspot.com/2008...

more kooky talk...even if what fx posts is true..i think the entire global economy and banking/credit/debt systems are literally on life support on a day to day basis. Given this undeniable fact, it is nearly impossible for any kind of consistent strategy or decision from any player in the market.

So, uh, what if Canada can't host the 2010 Winter Olympics due to insolvency? I vaguely recall you writing that the global secular bear of an unprecedented scale was to last for 7 years, min. (as per the proven Age of Aquarius).
In light of the secular bear will not all good people, companies and countries put charity first and feed Africa? Whichever scenario you offer I still see no reason buy Nortel stock at this point.

for the record, i've made more money trading Nortel the last 8 years than Cisco. Buying and holding is for long term losers.

I bought 8 shares of NT at ca. $10 back when to test run my new Scottrade account. I bought no Cisco stock whatsoever, so I, too, made much more money off Nortel than Cisco.

im not saying buy the stock...im saying that there is no way Canada won't run the printing presses and take all measures necessary to not host the Olympics. The world still had olympics during the previous great depression and it will during this one too.

Inbetween the proverbial optimism and NYSE /OSC /SEC /Gov't. /etc... support or shareholders involuntary patience, we get a glimpse of reality from the different articles:

Revenues were down 14% from a year earlier
Carrier network revenue was off 24% year over year
Enterprise solutions was off 8% year over year
Global services was down 6% year over year
Metro ethernet was down 12% year over year.
Orders in the quarter were $2.017 billion, down from $2.377 billion a year ago, and $2.153 billion in Q2.

the usual disinformation in a press release, must really burn shareholders (at least the ones without a hot-line into company headquarters). The bottom line is this: When Zafirovski took over as CEO in November 2007, Nortel shares traded at roughly $18 a share; today the company is a penny stock.

As Nortel Networks (NT) teeters on the edge, we might prepare to say our goodbyes by looking back on the company’s 113 years of existence.

We currently have cash and short-term investments of $2.6 billion. We believe we need under normal business conditions about $1.0 billion in cash. This does not include the cash and joint ventures in China and this $1.0 billion plus the cash requirements for China to run our business effectively.

Since September 17, [we’ve seen] a much more cautious view, and purchase orders being eliminated and/or at minimum deferred.

We are announcing a reduction of an additional net 1,300 positions… Our headcount at the end of September was just under 25,000,

The company’s cash burn rate and debt position with $1-billion of debt due in July of 2011, has some suggesting it may face bankruptcy if the situation does not improve dramatically. “While Nortel is not yet facing a liquidity problem, bond prices are signalling a restructuring with insufficient asset value to cover the debt,” Gimme Credit analyst Kimberly Noland told clients.

It’s not often that you see an analyst cut their price target on a stock to zero. But when a company looks like it may face bankruptcy, you can see why it may be a sensible choice.

Insolvency, in other words, is becoming a very real risk.

Mark, I'm hearing some loose-lip chatter about a BCE/Nortel unification/affiliation IF the OTPP takeover of BCE fails.

Any comments?

I see little value in a BCE - Nortel combination given their business directions and current market conditions. It would make more sense for BCE to sell off their media division (CTV, Globe & Mail etc.) and merge their networking assets with Telus.

WSN,

I haven't heard anything about a BCE-Nortel union/affiliation. To be honest, I can see how it would any sense.

Mark

It makes perfect sense given BCE is the provider for the 2010 Olympics and Nortel is the chief equipment supplier. Surely the government of Canada wouldn't let a thing like running some money printing presses stop them from being viewed negatively if they can't pull of a great show in Vancouver come early 2010.

Sorry, it still doesn't make sense. Bell isn't going anywhere, and whoever ends up with Nortel or Nortel's assets will happily step up to the plate as the official supplier to the 2010 Olympics.

I predict that next week – fx - will make yet another outlandish and unsubstantiated prediction. Giving top Vegas odds, any takers?...-- bb

It is not a question of whether fx will continue spout more BS. It is question what lies exactly he/she will come up with. Here is my educated guess:

"Mike Z to unveil plans for world domination via secret army of robot zombies he has been raising for the past 3 years. However Avaya has already been developing nano technology in secret to counter this. Board is pushing for Hackney to resolve the situation"

Last week, Cisco made an offer to buy Nortel's contact center and applications division.

And what about NSN ?

moving to second phase of negotiations.

Santa Claus and the Tooth Fairy are at an impasse with Mike Z over terms of the pension plan. Secret word on the street is that the Easter Bunny, with the support of Cerebrus and Texas Pacific, is going to take a run at an LBO priced at $30/share. Shareholders will be greeted by a leprechaun with a pot of gold at the end of the rainbow.

..if, IF Cisco's smog machines don't obscure the latter in a thick brown fog of ozone-depleting CO virtually unseen in the virgin skies over Canada prior to the Secular Global Bear caused by Big Oil.
I also take umbrage at using gold gleaned from orphaned child slave laborers in African mines run by Big Oil.

fx is part of the conspiracy to discredit and malign AAN. By posting outlandish, ridiculous and outright lies he/she plays the role of "agent provocateur" in an attempt to diminish the credibility of AAN so that when the actual truth is posted here, it will be ignored.

Don't be fooled by such pretenders!

fx is too late. You guys have already done a bang up job! Most of the HS (equestrian term) presented in this blog is just that. It's fun to read though. Keep it up! Beats watching Mike Z internal webcasts.

Oh, how great of you to grace us with your vast knowledge of equestrianism that adds absolutely no value to the discussion. (Like the rest of your posts)

Tell me sir, do you get up everyday looking to act pretentious among others?

And these two ‘gems’ of insight, in your own words:

fx 1 week ago
The board has initiated a search for a new CEO.

fx 5 days ago
stupid bastards, just wait and see. 3 weeks. i have my direct sources.

'fx' implies special effects; nothing special about gossip...--bb

First it was NSN wanting to aquire all of Nortel and now it is Cisco making an offer for the part of Nortel's Enterprise business that Nortel expects to have the highest growth rate and is a key part of their strategic plan.

Very hard to believe your rumors, but nice try anyways.

Guys, there is no conspiracy. I just wanted to contribute with some insightful information allowing people to see that there are alternatives cooking. There are no gossips. Of course I can't disclose the sources or how I get this information. All those postings are true, you can decide to believe of not.

NT went to Germany 2 weeks ago to present the whole Nortel, NSN was very interested and went to their board (it is a JV remember) and their CEO came back with their decision to move forward and dot he due diligence. The plan is to keep the Nortel brand and as a separate entity as NSN is really a JV that can;t be listed in the stock markets, with NT there is a way. The Enterprise division will have to be sold/spin off etc as NSN isn't interested in it. On the other hand Cisco has been trying to get presence in the contact center market + Microsoft is making some damage in the voice segment with their UC story and the link to NT brings some credibility, so Cisco has been planning to 2 months how to weaken that relationship. Their offer is to buy the applications (Contact center) and the voice business (remember that Steve Slattery, Ex Nortel Enterprise President is now GM of Cisco's voice division). of course NT is not happy with Cisco offer and it will likely be rejected. On the other hand the NSN angle is a viable one however the 4.6B in debt and the pension deficit is a big issue to resolve. On top of that NT has asked the Canadian Government for $1B in financial help to capitalize NT.

You can either believe it or not. Your choice. But based on all these comments makes me think it may not be worth sharing all this information.

just go ahead and share it, though we will take it with a pound of salt ;)

In the last paragraph of Neil's article (http://seekingalpha.com/article/108281-nortel-i...), there's a quote saying: "Our headcount at the end of September was just under 25,000, prior to these actions [another 1,300 layoffs] being taken place…".

However, even today, both Google Finance and Yahoo Finance list Nortel's employee headcount at 32,500.

So... which is it?

I'm just thinking that if Nortel reaches 23,700 employees, down from 32,500 (since when?), that will mean about a third of the employees being axed in 2008-2009.

If you read throught the transcript, Nortel says that their headcount is just under 25,000 full time Nortel employees and but that they also include about 6,000 employees in joint ventures, with LG, Microsoft, IBM and others in their employee count which brings the total to about 31,000 for the end of the Qtr. I believe that this is the way they have tallied headcount for years since they started joint ventures.
It is also inferred that they intend to put through additional restructuring charges of 90 meg through the 4th Qtr. to concluded the 2007 restructuring plan, 70% of the 2008 restructuring plan and about 25% of the 2009 restructuring plan, meaning about 900 employees to go before year end that would bring their headcount down to about 30,000 from 32550 recorded as of year end 2007. Then a further reduction of 1600 next year to finalize the 2008 and 2009 restructuring plans. My thoughts are when all said and done you will be looking at 22,000 Nortel employees and 6000 in joint ventures for a total of 28000. But who knows, my rationale is as good as yours.... and headcount always goes up and down with sales numbers..

25k full-timers and the rest contractors?!