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Nortel Shares Fly South

Light Reading
News Analysis
Light Reading
4/30/2004

Shares of Nortel Networks Ltd. (NYSE/Toronto: NT) continued to slide days after the networking equipment vendor fired its chief executive and dropped the bombshell restatements that will erase hundreds of millions of dollars in reported profits (see Nortel Fires CEO).

Nortel's shares were down $0.08 (2.08%) to $3.77 in late afternoon trading on Friday -- down 34 percent since the close of business on Monday (see Nortel Stock Dives on Dunn Downfall). The share softness is understandable, given all the questions Nortel must address in the days ahead. "Financial accountability will become our watchwords," its new CEO, Bill Owen, said on Wednesday. And investors seem anxious to hold his feet -- or anyone's, really -- to the fire as class action securities suits start showing up. What happened to send Nortel spiraling? Several theories abound, a popular one being that the company's controversial "return to profitability" bonuses sparked a wave of greed and cover-up. "We think the profitability bonus was likely the seed that gave incentive to executives and started the process of manipulating revenues and expenses at Nortel, a slippery slope that led CEO and former CFO Frank Dunn and CFO and former Controller Doug Beatty to attempt a proactive restatement in October after profitability bonuses had been paid out," writes Legg Mason Inc. analyst Timm P. Bechter, in a note to clients (see Nortel Silent on Baffling Bonuses).

What happens next for Nortel is a bit up in the air. Naturally, the company will try to bolster its credibility, as it has already with new executive and board appointments (see Nortel Names New Board Member). For the time being, though, all eyes will be on the filing of Nortel's next 10-K (detailed annual report) with the Securities and Exchange Commission (SEC), which should disclose what bonuses were paid and where the mysterious "proactive" profits came from. This won't come right away, as Nortel is entangled in reviews by its Internal Audit Committee, its external auditors, securities regulators, and lawyers galore. But Nortel musn't take too long, cautions Desjardins Securities analyst Paul Howbold. "We would note that investor concern will likely intensify if this [the 10-K filing] has not occurred by June 30," he writes in a report to clients.

— Phil Harvey, News Editor, Light Reading

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dodo
dodo
12/5/2012 | 1:53:18 AM
re: Nortel Shares Fly South
http://www.ottawabusinessjourn...
"According to the Globe and Mail, investment bankers are pitching the idea to big foreign telecom players like Finnish wireless giant Nokia Corp. and France's Alcatel SA, the world's largest maker of Internet broadband equipment."
technonerd
technonerd
12/5/2012 | 1:53:17 AM
re: Nortel Shares Fly South
According to the Globe and Mail, investment bankers are pitching the idea to big foreign telecom players like Finnish wireless giant Nokia Corp. and France's Alcatel SA
Nortel should spin out the DMS business to a leveraged buyout player like Texas Pacific. There is always going to be a demand for this stuff, albeit at a lower level than before given the fact that there's a huge surplus of big iron on a par with the surplus of railroad tracks.

But you still have to maintain the tracks, and occasionally lay new ones. There are companies that do that very thing, just as there will be companies in the TDM switching business.
No-tell
No-tell
12/5/2012 | 1:53:15 AM
re: Nortel Shares Fly South
Why would anyone acquire Nortel now? Here are the bad things that could happen to an acquiring company:

1. They inherit Nortel's mess with its debt holders, and potentially end up paying out billions of dollars in accelerated notes.

2. They inherit lawsuits and investigations.

3. They inherit a completely demoralized staff.

The potential positive is that through the merger they get some good technology and eliminate a competitor.

But by waiting to see what happens, Nortel's competitors stand to get the same benefits without the negatives. If Nortel has to take its eye off the ball to deal with all these problems, then competitors will benefit (free of charge) from Nortel's distractions. Or, if Nortel's creditors force bankruptcy, the competitors stand to pick up Nortel's technology at a very cheap price.

There's really nothing to gain by moving quickly, and potentially much to gain by waiting a while.
technonerd
technonerd
12/5/2012 | 1:53:14 AM
re: Nortel Shares Fly South
Nortel would be a natural acquisition for Cisco once they go bankrupt. Cisco is inept in circuit switching, and culturally unable to deal with telephone carriers. There are parts of Nortel still able to do this, but there's no sense in Cisco taking all the dross. Wait for it to fail and then pick up the pieces.
OptixCal
OptixCal
12/5/2012 | 1:53:05 AM
re: Nortel Shares Fly South
I guess this is proof positive that Canadian business men can be and, by the look of things, just as STUPID as their American counterparts. The really sad part of this whole thing is that this clown is now going to retire to some warm climate so he can - in my opinion - live off the proceeds of embezzeled funds.
inauniversefarfaraway
inauniversefarfaraway
12/5/2012 | 1:53:03 AM
re: Nortel Shares Fly South
Is the culture at Nortel the true bearer of sins? Does this company rely on the fact that government will bail it out? Like most major telecom manufacturers built on a heavily regulated industry, 5%/annum growth, state-spawned entity, there is no incentive to perform. The recent spate of scandals exemplifies the flawed culture of ignoring reality, fudging numbers, assigning credit and blame whimsically, and meeting very hard realities poorly. From the lowest rank, this is the prevailing attitude. Don't we all accept as true that the worker bees are kept in the dark and covered in feces just like mushrooms? Isn't it a fact that only those proficient in golf, and that have good depth perception to navigate the treacherous difference between behind-kissing and brown-nosing, are able to reach the next rung on the ladder? What happens when an entire organization is filled with those gifted as such? From the flawed torpedoes that sank the Kursk, to the flawed financial reporting and products, human nature is constant. How else can the leaders of these enterprises fail to explain, for example, how the demand for optical components fell apart? Is it because of the absurdity of building multi-million dollar complexes to produce optical that don't work is too much reality to bear? Were these people so busy checking stock prices, and how rich they were becoming on the lies, that it all looked too good on paper? Now these companies all claim that they've exported production to China. Is this all b.s.? Why isn't Spitzer investigating one of the largest frauds perpetrated on the markets? Are we so shocked to learned that Dunn was fudging the numbers? Somebody, give me a break. It almost seems as though creative truth telling (aka lying) is falling out of favor these days. Nortel might just be waiting for better days when some movement will save it from itself. This will likely only belay the inevitable. Remember that this is not the first cycle of crisis for Nortel, or others. They will likely find some new horse to whip, until it too is no longer able to create the miracles that keep this dinosaur alive. In another couple of days, the stock will be attractive again. ;-)
technonerd
technonerd
12/5/2012 | 1:53:02 AM
re: Nortel Shares Fly South
Were these people so busy checking stock prices, and how rich they were becoming on the lies, that it all looked too good on paper? Now these companies all claim that they've exported production to China. Is this all b.s.?
They must have thought that, by virtue of selling things based on silicon, they could be just as shamelessly and blatantly vain, corrupt, grasping, greedy and non-productive as the tech companies in California. The difference is that, at one time at least, Nortel was a real company. 'Tis a shame.


Why isn't Spitzer investigating one of the largest frauds perpetrated on the markets?
Hey, I'm critical of Spitzer for being too easy on the big investment banks of Manhattan, but I don't think Canadians can really blame the attorney general of the State of New York for failing to keep their flagship technology company honest.
inauniversefarfaraway
inauniversefarfaraway
12/5/2012 | 1:52:55 AM
re: Nortel Shares Fly South
>Nortel was a real company. 'Tis a shame

Way before, when they had a captive work force. With free trade, engineering talent can go for better opportunities. Management at Nortel never clued into this. They still think themselves the magnet for talent, the brainy monopoly. It would appear, once again, that their cluelessness outdoes their cleverness.

>failing to keep their flagship technology company honest.

Well, they are turning to William Owens for leadership. You would think that with Nortel making up a substantial chunk of the Toronto stock exchange, they would do a touch more than cheerleading. It takes the U.S. SEC to shed some light on the pinatas in the closets. Where, oh where, is any Canadian securities commission? Probably waiting for Godot.


If people flog the proverbial horse regarding Cisco's ability to produce carrier grade equipment, how about pointing out the failing grade Nortel and Lucent get in IP phone technology.

According to the soap-boxing we read on this board, Nortel and Lucent should have IP phones available in at least twelve different styles and colors, and the class 5 switch to go with it.

Wait a minute, that's another soap box.

HellOOOOoooo?
prefer_to_lurk
prefer_to_lurk
12/5/2012 | 1:52:53 AM
re: Nortel Shares Fly South
"If people flog the proverbial horse regarding Cisco's ability to produce carrier grade equipment, how about pointing out the failing grade Nortel and Lucent get in IP phone technology."

Ummm... not going to touch LU on this one, but you may want to rethink your comment on NT.

On the Carrier side Take a look at the VZ announcement, or Sprint, or BCE. As for Enterprise, take a look at some market share reports -- NT is right there with CSCO in VOIP.

Just out of curiousity, where should "engineering talent go for better opportunities" ? You're not still slaving away at a SJ startup dreaming of making millions in an IPO, are you ? HellOOOOoooo ???

ptl
truelight
truelight
12/5/2012 | 1:52:52 AM
re: Nortel Shares Fly South
Nortel will surivive with the right management leaderhsip. A few good men versus a few (okay a lot senior) corrupt men.
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