A Nortel Comeback? Verizon Deal Brings Cheer

Shares of — dare I say it once again? — “beleaguered” networking equipment vendor Nortel (NT) are up almost 11%, or 88 cents, at $8.99 this afternoon, the biggest gainer on the Nasdaq on a percentage basis, after the company’s meeting with investors at its headquarters in Toronto today. The Wall Street Journal says that the agreement announced with Wimax wireless vendor Alvarion (ALVR) today, which Eric wrote about earlier, signals a shift in Nortel’s strategy for cellular equipment, but that’s less likely to be what’s moving the stock.

“The things the Street likes on the conference call today are the confirmed guidance and the progress they are making on 40 gigabit and 100 gigabit metro ethernet equipment,” says American Technology Research analyst Mark McKechnie, who listened in to the investor presentation today. “They got an order from Verizon Communications (VZ) for metro ethernet, that’s the biggest takeaway,” says McKechnie. I don’t have full details on the Verizon win, but will post as soon as I do.

With Nortel shares down some 65% in the last 12 months, investors may be relieved to hear the company reiterate its financial outlook for this year, with revenue expected to rise “in the low single digits compared to 2007,” gross profit as a percentage of sales to around 43%, and operating profit as a percentage of sales to increase “by about 300 basis points compared to 2007,” according to Nortel’s press release today.

As far as the deal with Alvarion, McKechnie says Nortel still has a “soft spot” in equiping carries for next-generation 3G cellular service. “You”re looking at mostly a mix of legacy [equipment] with no 3G,” he observed in a phone call. “You’ve got a soft-spot there.”