What’s the New Nortel Going to Be?

if NT retains any of the executive buffoons that drove it down its current path, then it is not a “New Nortel”, just a smaller edition of the same 'ol Zschitt

“…they might hold off as long as possible to pick up what they can as cheaply as possible.” -http://www.theglobeandmail.com/servlet/story/LAC.20090313.RNORTEL13/TPStory/Business

I read this as the value of the assets not being worthy of ANY competition, at all. Not much of a legacy for Nortel. Very sad, indeed.

Assuming the potential buyer(s) want some of the employee base that go along with Carrier and/or Enterprise, then time is critical since many are actively looking for jobs or are already jumping ship.

“Holding off as long as possible to pick up as cheaply as possible” could be an expensive gamble if the in-depth knowledge behind the purchased product lines is no longer available (I'm referring to the R&D employees, JCI5 and below).

Here's an interesting article

http://articles.moneycentral.msn.com/Investing/…

Provides a good comparison to Cisco and its performance. Also makes a good case that the economic times are the real reason.

“Provides a good comparison to Cisco and its performance. Also makes a good case that the economic times are the real reason.”

Not at all, he in fact says: “Given the timing, a collapse in Nortel's stock beginning in 2004 and in revenue beginning in early 2007 can't be blamed on the bear market or recession we're in now. “

I have to agree with NortelSouth — this article definitively makes the case that the economic times aren't to blame. You'll hear a lot of the execs from NT these days saying that it's all to do with the economy, with customers not buying as much, etc, etc. No one has yet to step up and say 'our operating model stinks'. You absolutely cannot make a profit when your business units are still behaving as if they're in the telecom bubble of 2000, years after the bubble has bust.

Since March, there are people (mostly JCI 5 and under) jumping ship every week and the rate in increasing. The economy is so bad out there and these people can still find a job and land at our competitors shop. This means those are the good ones, the ones Nortel really needs to keep. You cannot blame them for leaving the mothership. Who would want to stay in a company with incompetent, greedy and lying CEO, insensitive executives, 0 severance, reduced pension……

Great link. Economic times aren't the real reason as Jubak and NortelSouth have indicated though I do believe the economy accelerated Nortel's decline and bankruptcy filing. It would have likely happen later in 2009 or 2010 anyway. The paragraph below from Jubak is telling about the future:

That's the business model Nortel will still be stuck with once the recession and bear market are over. It will face horrendous competition, a shrinking customer base, falling prices for its gear, a relatively empty pipeline of new products, a huge debt load and lagging profitability.

Given the above, Nortel & the secured bondholders probably are figuring out that they would be better off just breaking up the company and selling it right now.

To answer Mark's question above: There will be no new Nortel because none of Nortel's businesses are sustainable on their own anymore because of the reasons given by Jubak.

Why would they want more employees in a shrinking economy ? I think every company in the industry will slowdown as carrier & enterprise spending shrinks globally. Nokia Siemens, Avaya and Cisco still have the global wage arbitrage issue to deal with. They will all be forced to hold the line on salaries in North America and Europe and shift work to lower cost centers in Asia. John Chambers has even said that each employee in the US has to produce great than 2x the revenue of an employee in Asia. In China its 5x. Given the slowdown is global, wages will start falling across the globe and those in Asia will also be willing to work for even less.

Waiting for a lower price? What are the offers so far?
Where on earth is all this rampant speculation coming from?
Who says anyone is waiting for a lower price than simply not interested at all!

Their options are not as wide and diverse as suggested.
This is why they filed for bankruptcy to begin with.

They can not sell off key units any more is more to the point. They were lucky they dumped UMTS earlier.

Even if there were any potential buyer, the buyer can not easily finance let alone pay for a losing proposition.

Look at their most promising area, Enterprise, down 30%
Look at the margins – slim everywhere.
CDMA was their cash cow that accounted for almost all their earnings but now it too is gone
What's left to salvage, what meat when it is all bones?

Of course the value of assets are declining because they are headed south in the wrong direction. Who wants to buy this?

I do not believe creditors, with their mounting to compound interest stalled, are willing to take another stake in any new and forever eluding plan, as a smaller company, with slim margins and growing competition.

To get any value from any unit purchased it has to be making money, or the buyer has to be able to somehow make money with it somehow. Again, which units are profitable enough or have good enough margins to make them enticing let alone at the proposed valuations.

Wild valuations… speculation runs rampant neglecting the very margins/profitablity for revenue sake.

Who needs revenues so badly neglecting earnings. Who else shares their strategic madness to buy losing earnings revenues like they pulled with PEC or BSNL or Tasman etc…? Not only are earnings tanking so are the very revenues now.

I can't see government supplementing pensions as they did with Stelco either to sweeten any deal, or the tax credits being of any substantial incentive, and am hard pressed to see how they can possibly alleviate the burden of debt in any deal with what options are before them.

As I have maintained all along, a normal company can simply wait and acquire their markets through attrition than pay a red cent to take on a pathlogical white elephant.

Incompetent big business concern right to the very end in directionless despair. All horsefeathers trying to fluff the pig's silk hat in my view.

I may be wrong but I do not believe they will sell a damn thing at any price. Its worthless, worse yet, a burden.

I will forgive your critique of little Hans doc.

You analysis is improving =)

For those that have a real business interest as to why The Gores Group / Siemens Enterprise Communications would have an interest in Nortel's Enterprise group, there are a few different documents available at: http://www.enterasys.com/company/news/

Pages 10 & 11 of the “Announcement Presentation” shows the forecasted evolution towards Software and Services through 2010 as well as the Indirect (Channel) Revenue differences that currently occur.

Nortel brings strength in North American install base and the Sales Channel and Distribution model that the Gores/Siemens JV wants and needs. There is also some real technology opportunities related to next generation voice services as both Nortel and Siemens have very good technologies to address this emerging market while sustaining their current systems and market share.

It's good to see that Duncan Stewart “gets it” even though his comments to the Montreal Gazette are strikingly similar to the comments I made on this blog when this original news/speculation broke.

Should this transaction complete, the merged entities of Siemens Enterprise Communications + Enterasys + Nortel + SER Systems would have an Enterprise Revenue base of around $7 Billion USD (based on 2008 numbers) which would put them as the clear #2 participant in the Enterprise market with a fairly complete market offer.

I have a feeling that if and when whomever buys pieces of Nortel, will have buyer's remorse once they look under the hood after a few months. As Jim Jubak pointed out in his article:

That's the business model Nortel will still be stuck with once the recession and bear market are over. It will face horrendous competition, a shrinking customer base, falling prices for its gear, a relatively empty pipeline of new products, a huge debt load and lagging profitability.

That is more telling about what's inside the parts of Nortel. Given a shrinking economy, competitors would just be better off capitalizing on Nortel's shrinking customer base and channels instead of taking on more employees and the challenges of integrating Nortel's declining product set into a portfolio. There is no great new or existing product that Nortel has that isn't a commodity already. Anyone who buys pieces of Nortel for cash is wasting capital.

What about the “sub JCI4 peons” ?!! LOL !!

That was one of Desk Jockey's !!!!

;+) Moose Chasers

that's not the issue really…i'm saying there wouldn't be much value to an acquisition that is quickly losing customers to competition and very little in the way of new products.

Regarding the debt, if they still emerge with unresolved unsecured creditors, aren't they still liable for that debt ?

Perhaps you haven't heard or chose to ignore that Nortel is shifting their strategy more towards software that runs of standard servers. Margin potential in software is far more significant than hardware.

Their challenge is the continued support and evolution of legacy systems that their customers have had installed for many years.

Enterasys and Noika have partnered since 2002. Noika formally took a 49% minority stake in this merging market with a $550M deal in 2008 to compete against Cisco and Juniper.

Duncan was commenting on what might be left of Nortel as you evaluate him “getting it” to bolster your own credibility while being so consitently wrong pumping this tanker over the years, to more recently blaming the media or management.for Nortel's demise, patronizing , name calling.

Duncan gets it but you do not have a clue what you are talking about do you? You pump no matter what.

What are the chances of have a nice day probability to “put them as the clear #2 participant” …clear…with your “should this transaction complete” given there isn't even an offer on the table. …WoW or what like the abcs of investing and I am sure you know exactly what I mean.

If?
Majority?
You don't even have a clue as to the very basics of how corporate bankruptcy works, do you?

Even “if” the secured creditors did accept less money to reduce burden, do you think unsecured creditors would go away? Is that it?

The can't alleviate debt without chapter 7
to emerge from bankruptcy they must address creditors successfully.
secured get paid first /unsecured like severances hold an empty bag when there is nothing left

Now, of their endless creditors, do you think they will take a fraction on the dollar to watch them restructure? Now do your wonderful arithmetic again.

Perhaps you should read more and post less.

Yes James, we all understand that you are desperate to see Nortel destroyed and their employees harmed. Yes James, we all understand that anyone that doesn't want to see Nortel destroyed you call a pumper or worse.

At the end of the day, both the Secured Creditors and Unsecured Creditors will have their say in the courts before any final disposition is approved. Then we can all move forward based on what becomes court approved.

“$3-billion in revenue, let’s say 5,000 to 10,000 employees,”

$3B revenue / 10K employees fits the linear death spiral from $30B sales/ 90K to employees to $10B /30K

Problem remains they must still satisfy creditors to exit bankruptcy

The reason why they went bankrupt to begin with after already selling so many assets and printing so many billions should also be a consideration when assessing their forecasting what this new venture can do

Given 4.5B debt + 2.8B pension shortfall+growing creditors and severances the $1.3B they might get for wireless and enterprise may prove to be only a drop in the bucket in the grand scheme of things with the balance of burden outstanding,

Can they even sell these rapidly depreciating units high enough and fast enough to pay increasingly growing creditors enough to refinance the balance under a new entity or provide enough equity in this new gamble

Will creditors accept a minority stake in yet another venture with a unit they couldn't sell.

Where do they lead than a measure to continue to exist .

How optimistic will this be killing overlapping segments that compliment each other let alone considering ongoing growing competition.

At least before they had a cash cow accounting for almost all their profit, to low margins to carry a linear amount of employees.

And this is a best case scenerio in the event they can even possibly dump parts of their money losing business to be left with what…

Commodity is irrelevant. Business are successful when they understand their customers and the technical possibilities.
- Cisco makes whackloads of money on 'commodity' routers
- Microsoft makes whackloads of money on 'commodity' OS (I can download a competitor for free).
- Dell recently hiccuped but made whackloads of money on 'commodity' PCs.
- Google makes whackloads of money on 'commodity' web searches.
etc.
It is hard to think of a hi-tech 'gorrilla' that isn't in a 'commodity' business. (Apple comes to mind – but they certainly understand both their customer and the technically possible).

Nortel will not be successful as an incompetent software or service business. And there is no evidence that they understand either business (other than as a adjunct to their core business – e.g. network planning). IBM, Microsoft et al will simply eat their lunch.

There are businesses that they do get (notably optical, and some niches in Enterprise). Nortel can drive the long haul optical business.

My hope is they get out of the business they don't get and focus on where they can be successful.

Who the heck is Michel?

There you go again, constantly attacking people and calling me a “crook”. Please, give me clear and concise evidence that I am a crook. Names and Dates will suffice.

I really am getting sick and tired of your attacks on me.

As far as I know, there are no secured creditors. As for unsecured creditors, that is not a problem. They will negotiate with their lawyers and come up with a take it or leave it settlement. Most will take it. It will be pennies on the dollar. It always is. This is nothing new. I've seen it many times….

Those are good examples you pointed out but they are in different markets than Nortel. Playing to the consumer market changes the model drastically. Nortel will never be thought of a consumer company like the ones you mentioned. The one thing a lot of people don't seem to realize is that if you change one small variable, the whole picture changes. So your better off comparing apples to apples. Given the key segments Nortel plays in that it gets its revenue from, their competitor isn't Cisco or Google but Avaya, Nokia Siemens, Alcatel-Lucent, Ciena, Huawei and others who still gain the majority of their revenue from telecom/carrier (not enterprise or the consumer). Nortel was always a carrier company at its core yet we now see news that they are willing to sell carrier and enterprise. That leaves MEN and global services — neither of which have a survivable model to succeed in a receding economy. I share your hope but I just don't see anything in the news from Nortel that would make me believe they will come out of this. Unfortunately, given the news about selling the parts, I think the secured debtholders realize this too and just want some of their money back.

Beggars cannot be choosers.
The Big secured creditors will take what they can get and it will be pennies on the dollar. That is what happens when you enter bankruptcy protection. You can bank on that.