Nortel News: Clearwire Connection, Dunn's Legal Troubles, Bearish Analyst Report, Operations Streamlining

Nortel's Clearwire Connection

If you push aside Nortel’s (NT) struggles to re-invent/restructure itself, one of the company’s strengths is providing carriers and cablecos with technology to offer VoIP services.

A relatively new customer for Nortel is Clearwire (CLWR), Craig McCaw’s WiMax service provider that has been working to carve out a wireless broadband business in the U.S.

Clearwire wants to expand into VoIP by using Nortel’s Application Server 5200 and Communication Server 2000 into its data centers.

Nortel’s Robert Scheible told LightReading that Clearwire’s move into VoIP is the first step in a plan to offer more products and services.

Nortel works very closely with the carriers that are out there to help them evolve their network and take them to the next step,” said Scheible, senior manager of VOIP product marketing for Nortel. “This is not a final capability when they purchase a solution like this. This is really just a stepping stone to even further broaden offerings from their networks.

Dunn Legal Troubles

Ex-Nortel CEO Frank Dunn wants to defend himself against regulatory lawsuits but he claims that he can’t because Nortel won’t pay his legal bills.

Dunn’s lawyer, Thomas Heintzman, told a judge earlier today in Toronto that Dunn has “huge” legal bills but unless Nortel covers his costs, there’s no way he can afford “qualified counsel”/

One of Dunn’s problem is that Chubb, which insures corporate boards, claims Nortel’s insurance doesn’t apply to Dunn because the lawsuits filed by the SEC and Ontario Securities Commission were filed after the policy had lapsed.

The case is between Frank Andrew Dunn and Chubb Insurance Co. of Canada, File No.: 07-cl-007131. Ontario Superior Court of Justice (Toronto).

Bearish Analyst Report

Financial Post columnist Duncan Stewart is downright bearish when he comes to looking at the prospects for Nortel shares over the next six months - a marked contrast to bullish reports recently by TD Securities’ Chris Umiastowski and Scotia Capital’s Gus Papageorgiou.

While Nortel shares have struggled recently, Stewart believes now is not a buying opportunity.

Nortel is indeed trading at low historical valuations. But my research tells me that the next six months will see investors’ feelings towards the telecom equipment manufacturers get worse, not better. And despite Mike Z’s [Nortel CEO Mike Zafirovski] best efforts on the factors he can control — costs and products — the factors that are out of his control will dominate investor sentiment and Nortel’s share price.

I wouldn’t short Nortel here — it is too cheap to do so safely. The company could get bought, and the possible downside from here is limited to perhaps another $2 to $3, implying a $10 to $11 floor price over the next six months.

For what it’s worth to NT watchers, Stewart said he would also short Ericsson (ERIC), which currently sports a price-to-sales multiple almost double Nortel and Alcatel (ALU).

Operations Streamlining

According to CBR.com, Nortel is going to streamline operations by dramatically reducing the number of applications running on its corporate network by more than tenfold (1,100 to 100) over the next 18 months, while lowering the number of data centers to two from four.

“Today, individual business units, functions and countries may have different ways of doing customer numbers, product numbers, pricing or credit, for instance,” Nortel CIO Steve Bandrowczak told CBR. “We’ll remove redundancy with a standard set of greenfield apps for how best to run Nortel, into which we’ll be collapsing all our existing apps.”

Both moves make a lot of sense. I wonder how much they will lower operating costs a year.