Ethernet equipment

Nortel Plunges on New Forecast

Nortel Networks Ltd. shares are down nearly 40 percent on the company's lowered outlook and the news that it wants to sell its Metro Ethernet Networks (MEN) business.

The MEN division includes Nortel's optical business and its carrier Ethernet work, including its Provider Backbone Transport (PBT) technology. (See Nortel to Sell Carrier Ethernet, Optical Biz.)

That's big news, but so is the lowered forecast. After predicting single-digit sales growth this year, Nortel is now saying its 2008 revenues will be 2 to 4 percent less than the $10.95 billion it reported in 2007.

Nortel shares opened down 21 percent this morning and have continued to fall. At press time, Nortel was trading down $2.07 (39.1%) at $3.23.

An early sign of trouble came last month with Nortel's second-quarter earnings, highlighted by soft CDMA sales. In reporting that news, though, Nortel had insisted it was still prepared to meet its 2008 targets. (See CDMA, Charges Knock Nortel.)

Nortel's MEN, which comprised 14 percent of 2007 sales, is arguably showing some promise. While PBT -- known as PBB-TE in IEEE circles -- remains an issue of debate, it's certainly piqued some interest. And while Nortel isn't leading the 40-Gbit/s optical market, it seems to be building a good reputation there. (See Nortel Rolls On With 40-Gig.)

— Craig Matsumoto, West Coast Editor, Light Reading

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materialgirl 12/5/2012 | 3:31:41 PM
re: Nortel Plunges on New Forecast If Lehman Brothers can disappear overnight, so can NT!
inauniversefarfaraway 12/5/2012 | 3:31:49 PM
re: Nortel Plunges on New Forecast This didn't happen overnight. The best way to summarize what has happened (and will continue for much longer than tolerable) to Nortel is that this is the -long- culmination of rewarding bad behavior. It sounds simplistic, but this is it.
Doubtful that much will remain to sell for value. Nortel has always allowed desireable divisions to wither on the vine until sold at a loss. This is evidenced by the statement that funding for the "for sale" division will be maintained. They should instead consider bridge selling.
Even cheerleading analysts are referring to the division as the crown jewel, likely a desperate attempt to save their investment and get something for their shareholders. It is a contradiction in terms, only adding bad behavior on top. This will only prolong the agony.
It would be ideal to have a merciful end to this death rattle. However, the agony will likely continue with much denial and thrashing about.
Nortel brass is the only thing left in the company, since it hasn't managed to build on their heritage, what expertise do they have to sell? Is there another company that needs some weight loss? Who would wish Nortel onto a prospective suitor?
jepovic 12/5/2012 | 3:31:51 PM
re: Nortel Plunges on New Forecast This smells desperation. Slashing the value of the company by half can't possibly be done unless absolutely necessary.

I wonder if Nortel is even worse off than the market believes.
K28.5 12/5/2012 | 3:31:52 PM
re: Nortel Plunges on New Forecast donniall makes an interesting point.
On one hand, to make NT attractive for the likes of MSFT, it does have to be focused on the enterprise market. However, it doesn't make sense to lower your valuation before a deal is made, and there is no doubt that all these announcements were sure to make NT shares plunge.
NeuronHammer 12/5/2012 | 3:31:52 PM
re: Nortel Plunges on New Forecast After Ericsson teamed up with STMicro (http://www.lightreading.com/do..., who will buy the 4G-activities from Nortel ? Or at least team up with them, just in case...

Texas ? Infineon ? Motorola ? Maybe even ALU ?

NT share price down 50%, and it took ALU down 10% as well. Not to mention all the others :(

And finally: who gets (ass)-beaten in the next weeks when the report-season for this fiscal quarter begins ?
donniall 12/5/2012 | 3:31:53 PM
re: Nortel Plunges on New Forecast So with this 'mini-size me' NT strategy, and with UC emerging as an enterprise battleground going forward, is it possible nortel might be an acquisition target for Microsoft? Cisco's acquisition of webex raised eyebrows some 15(?) months back, and is now a pivotal component of their UC strategy ..... Its not beyond the realms of possibility that Microsoft might do likewise?
There's a distinct tone of 'clearing the decks' about todays announcement

DCITDave 12/5/2012 | 3:31:53 PM
re: Nortel Plunges on New Forecast We're working on it. Got quite a few other bits to uncover first, given the number of moving parts affected by one single domino. I mean, announcement.

In the meantime, here are a couple of slides from their 2Q presentation (that weren't noted in the press release):

MEN revenues

MEN projected growth
hyperunner 12/5/2012 | 3:31:54 PM
re: Nortel Plunges on New Forecast Phil,
How about a proper story on this point. Surely you could present Nortel's worth based on the "value of its parts".

Look at the company report, find out how much revenue, margin and liabilities each division contributes. You'd need to factor in the quarterly numbers, which might not be broken down by division, but probably just pro-rata the overheads. Compare each of these numbers to analyst predictions for the growth of these segments, and then apply some of your own anaysis based on the performance of the Nortel brand and routes to market versus the major competitors in each segment. So you could get a baseline value for each division.

But at that point each division is effectively worthless unless somebody buys it.

So now for each division you have to analyze the possible companies who could acquire it (especially based on the state of the capital markets), and rate the chances for a likely suitor. Remember to allow for existing product conflicts when you're trying to figure out the "synergy value".

Ah - forget it! Just crack open another beer :-) ??

nodak 12/5/2012 | 3:31:56 PM
re: Nortel Plunges on New Forecast Are they looking to sell what they can and close the doors? With the talk of selling 4G, Optical/Ethernet, what is going to be left to make money for them?
materialgirl 12/5/2012 | 3:31:58 PM
re: Nortel Plunges on New Forecast NT is worth the net present value of its future cash flows. Unfortunately, with weak and unpredictable telco spending, their cash flows from that segment are likely to be negative. Perhaps one should just look at their enterprise business.
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