All About Nortel

Don’t worry if Nortel’s Q2 results fail to give its shares a jump-start.

Scotia Capital analyst Gus Papageorgiou said Nortel’s third and fourth quarter results will be better with impressive performances from its optical and enterprise units.

Papageorgiou rates NT as a “sector perform” with a targer price of $11.50.

I’m supposed to be on vacation but figured I could sneak in a quick post given AAN reached the 500 RSS subscriber mark for the first time!

I guess it shows that people need their daily Nortel fix so RSS it’s an easy way to get it. That said, the vast majority of traffic to AAN comes right to the blog as opposed to RSS or search engines.

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A belated alert that posting over the next week or so will be light due to vacation. The exception will be Nortel’s Q2 results, which will be released August 1. But you probably knew that.

Given how quiet it has been on the Nortel front, you have to believe the senior executive team has packed up for cottage country.

But AAN needs to keep feeding your Nortel fix so I was scouring the Web looking for interesting tidbits when a Reuters story from last week caught my attention. Francois Lancon, who heads up Nortel’s Asia-Pacific operations, said the company wants to get 20% to 25% of its revenue from Asia, compared with 16% last year.

Lancon told Reuters it’s “pretty ambitious” - which probably ranks as a major understatement given the fierce competition, especially from domestic suppliers such as Huawei and ZTE.

Still, you have to give credit for being offensive instead of defensive. Remember, this was a company that was battered and bruised as it trudged its way through an accounting scandal and a series of financial restatements. Even if sales don’t show any noticeable improvement, it’s good to see Nortel posturing in a positive way - be it about Asia or how environmentally-friendly its products perform.

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It’s far from clear these days where IP-TV fits into Nortel’s strategic priorities but, according to eMarketer, the IP-TV market is poised to boom with the proliferation of high-speed Internet access. eMarketer expects the number of IP-TV subscribers to grow to 12.7 million in the U.S. by 2012 from 3.3 million in 2008.

Nortel has IP-TV solutions but you just don’t hear the business or technology that often from senior Nortel executives.

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Citing Nortel’s “revitalization efforts and its improved business model”, DBRS changed its trend on the company’s debt to “positive” from “stable”, while confirming its B (low) rating for Nortel’s short and long-term debt. DBRS also established an issuer rating for Nortel at B (low).

“The foundation for growth at Nortel has been developed by a largely new management team over the past two-and-a-half years and, as DBRS has noted previously, the management team, under the direction of CEO Mike Zafirovski, has made significant progress in stabilizing the Company. DBRS now believes the Company has in place a foundation upon which management can begin to profitably grow its businesses.

DBRS is encouraged by Nortel’s optimism for growth in the enterprise and Metro Ethernet segments to replace declining wireless sales as customers start to migrate their GSM and CDMA network to 4G and LTE. DBRS expects the CDMA market, which accounts for most of Nortel’s profits, to decline by 4% a year for the “foreseeable future”.

“In order to offset this decline in its main cash generating engine, Nortel has rebuilt the other segments in its portfolio and will rely on them to achieve its objectives of (1) double-digit operating margins, (2) strong cash generation, and (3) revenue growth greater than the market.”

For more details, check out the DBRS Web site. As well, Seeking Alpha’s Larry MacDonald has a post on changing analyst sentiment towards Nortel.

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The decline of Nortel shares continues to unfold as memories of the company’s annual investor day last month become a distant memory.

With the stock down another 14 cents today to $6.42 in extremely heavy trading, it has now dropped 36% in the past month. Then again, many of Nortel’s peers such as Alcatel, Cisco and Jupiter Networks have been weak performers over the same period.

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You have to admire Nortel’s enthusiasm and persistence in hammering home the message that it’s the supplier of choice for anyone concerned about reducing their energy consumption.

Nortel’s embrace of being green moved forward with the launch of an “energy efficiency calculator” that apparently shows how much energy customers and potential customers could save if they switched to Nortel data network equipment from Cisco equipment.

Nortel claims third-party tests show that its equipment delivers:

* Up to 7X improved resiliency
* Up to 20X performance
* Up to 50% reduction in Cost of Ownership
* Up to 40% less energy consumption

For more, check out ChannelWeb.

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RBC Capital Markets analyst Mark Sue believes Nortel shares could hit $18 by 2011….if everything goes perfectly according to plan.

“If things line up exactly for Nortel and the company hits the high end of its operating margin targets, Nortel can potentially generate approximately US$1.50 in earnings in 2011, Mr. Sue said in a research note. “Applying a multiple of 12 to 13 times gets us to a potential stock price of US$18 vs. yesterday’s close of US$7.04.

In the gambling world, this is what you would call hedging your bets. It’s a safe way of making a bold statement but adding enough caveats to protect yourself if things don’t happen in the way you envision.

At least Sue concedes he may be bullish, adding that “operating margin recovery has been insconsistent and visibility on the top line growth rate remains limited. Furthermore, Nortel’s other income/expense items remain highly variable’.

For the time being, Sue is maintaining his “sector perform” rating and US$8 price target.

Source: National Post

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Even as Nortel shares slide back down again, there are analysts still keen on the company’s prospects.

In a research report, an outfit called International Independent Investment Research recently upgraded NT to a “buy” from a “hold” with a six to 24-month target of US$11.42.

IIIR analyst Jatin Predeep said he believes Nortel’s growth plans are “significantly bullish”, and that he expects healthy margins growth over the next two years even though revenue will likely increase by a modest 2.2% in 2008 and 2.8% in 2009.

Predeep said IIR is taking a “cautious approach” to Nortel because he believes management’s plans for revenue and margin growth are “overly optimistic” given the current soft business outlook.

“Nevertheless, we see significant improvement in the company compared to FY 2007. Subsequently, we maintain a positive outlook for the NYSE Nortel common stock”.

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