Nortel Is a Billion Dollar Company

The thing is, it's easy to forget that Nortel (NT) is a billion dollar corporation. The company expects a cash burn rate of $800 million for 2009, but it also has billions in cash and back orders. Yet shares traded Wednesday at $0.50. We all know how it got there, but still, talk about lack of confidence.

Some excerpts from Nortel Networks Corp.'s Q308 conference call:

Orders of $2.0 billion remain under pressure given the weak macro environment, with carrier making up the majority of the decline on a year-over-year basis… [We’re expecting] Q4 revenues of approximately $2.7 billion and a corresponding operating margin of approximately 9%.

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. Our next debt maturity is not until 2011 and we do not have any specific maintenance covenants on that debt.

Good deals going:

We have announced a number of important wins across our Q3. With unified communications we have announced important wins with HSBC, the New York Mets, Vancouver Canucks, Bloomberg, and a number of other companies to really driving content in their product line.

Also, Deloitte chose us as their tele presence global partner in the optical business of 40-gig count is now up to 31 wins with recent announcements with companies like Bell Canada and Southern Cross.

In the carrier space we have solid momentum including very important LTE’s wins including not only in North America but also... we got T-Mobile in Europe and Asia and just this morning we saw renewed TD spend in China, starting with the significant China Telecomm win, to upgrade portions of their network.

Industry outlook- if you can understand the syntax:

Since September 17, [we’ve seen] a much more cautious view, and purchase orders being eliminated and/or at minimum deferred. What we are doing internally, I believe it is a microcosm of what many companies are going through, in a stage of de-leveraging of their businesses.

I would argue that the actions which this management team has taken in the last two to three years, whether it was a legal exposure, whether it was a cost structure, whether there was investing 55% of our R&D legacy in dying technologies has been changed dramatically… We have worked with a great level of determination to have assets and technologies that would drive the company forward, they will be driving growth.

And we have also said, a consolidation will be important, but in the carrier space and whether that consolidation takes the place of partnerships or other activities, certainly we are not blind to those potentials.

It’s a global economy:

We are announcing a reduction of an additional net 1,300 positions… Our headcount at the end of September was just under 25,000, prior to these actions being taken place… We do have a pretty meaningful number of employees with our joint venture partners in Turkey and China and other places.

Comments

[arthur_0557:]

FINALLY! I good article on the TRUE state of Nortel .. Cheers to you Judy!!

2008 Nov 27 11:40 AM

[canb888:]

50 cents for shares that used to be over $1000 each split adjusted. What a shame. Maybe a CSCO cashless share swap takeover would have been better for shareholders and employees. There is not much hope on this management team based on their track record so far.

2008 Nov 27 11:42 AM

[Daniel Eskin:]

Despite the fact that it is a billion dollar company, Nortel is a money losing machine and they have been for the past few years. To stay logical, the reason why their stock is so low is because of that reason exactly, and their management's record hasn't build up the hype necessary to turn the stock or the company around.

So, despite all their free cash reserves, how long will it take until they are all depleted because of faulty operations?

What WOULD be useful to see how much each share would receive upon liquidation, then some arbitrage could come in handy.

2008 Nov 27 12:15 PM

[SM_PG:]

I have to say this was a long time coming to Nortel.
I have been dealing with them over the years and the quality of their services has been terrible.
Businesses have to realise that it’s not simply enough to have a good product – you have to offer service, pre & post market , training, solid channel support etc…
Nortel failed on all of those years ago so it’s no surprise to me this has happened.

2008 Nov 28 12:22 AM

[LittleGuy3000:]

Yes a good accurate article (thanks) - noting that 90% of it was what the CEO actually said on the investors call in the first place.
Cisco? I think I saw a comment on another blog to effect 'we all know what happens when Cisco buys a product. The product breaks'
It's a shame these blogs are plagued by speculators who lost their shirts in the bust, as opposed to those who took the money and ran in the boom
Sorry - in this environment of newly nationalised banks and worthless pensions, I must be getting cynical about the whole 'Endless-Growth Guessing Industry'

2008 Nov 28 04:56 AM

[David H. Deans:]

Granted, they continue to have profitability problems, and the executive turnover has added to investor frustration. That said, they still have potential -- particularly when compared to other companies in this sector, such as Motorola.

2008 Nov 28 08:44 AM

[Red Green:]

It's also easy to forget that Nortel used to be a $6 billion dollar company and even bigger than that for a period of time. With that large size and profitability came an arrogance that the management were all geniuses and deserved their bonuses and praise heaped on them. They just happened to be at the right place at the right time and made some good moves to capitalize on their good fortune. Then they started to make stupid decisions and started to buy all their own corporate psychobabble doubletalk--"thinking outside the box", "paradigm shift", etc. etc. They went on retreats and spent money doing goofy things like role playing exercises in the Pacific Northwest walking ropes and nonsense like that. Many Nortel employees could see the problems coming--why couldn't management? We saw the tremendous overcapacity in fiber optics yet Nortel management kept expanding the operations and making blunder after blunder. Mr. Z is replacing all the people he brought in while the company continues to flounder. Why should any Nortel employee, stockholder or former employee take comfort in the fact that it is still a billion dollar company. Just wait--in a year they won't be a billion dollar company. Then what do you write? I would love to see Nortel come back and be the company it once was. It is possible but it will take someone other than who they have now--and a new board of directors who have two things the present board doesn't have--spines and brains.

2008 Nov 28 11:51 AM

[klistierbunni:]

Recently deceased art collector Alec Wildenstein's collection is/was worth billions. The true "value" of art can be highly subjective, much like (Nortel) stock.
His ex-wife, Jocelyne Wildenstein, is still worth a bunch. Now, most anyone can be bought, myself included, but she would have to pay me dearly to hang out with her for even ten minutes.

<i>Within a year, the two were married in Las Vegas and came to live in New York in a double-wide townhouse with an indoor pool and a small menagerie including five Italian greyhounds and a capuchin monkey named May Moon.
Wildenstein once admitted that she kept her pet monkey in a Plexiglas cage installed above her gold-plated bathtub.
...all the work she's had done has made her a freak in Upper East Side social circles, she's found more acceptance with campy downtown scenesters like fellow plastic surgery fanatic Amanda Lepore."</i>

So Nortel has billions, but also piddled away no less. It has zero image, zero personality, zero hi-tech collection, zero campy charm.

2008 Nov 30 01:06 PM