Nortel News: Target Price Reduction, Alaska Communications Deal, Acquisition Rumors

Analyst Target Price Reduction

RBC Capital Markets analyst Mark Sue has reduced his target price on (NT) to $6 from $8, suggesting that tougher economic times could make it more difficult for IT managers to wander away from incumbent enterprise network equipment suppliers - making it tougher for Nortel to attract business. (Source: MSN Money)

In July, Sue said that Nortel could hit $18 by 2011 if everything went according to plan. Clearly, things aren’t currently going as well as planned.

Hat tip to Barron’s Tech Trader Daily for Mark Sue’s thoughts on the downgrade:

An increasingly difficult macro environment may be making IT managers stick with their incumbent enterprise networking vendor, making it difficult for Nortel to increase its presence with large corporations. Combine this with overall expending sales cycles and Nortel may face headwinds as it looks to reach its near-term financial targets.

Sue reduced his Q3 revenue estimate to $2.55 billion from $2.66 billion, while he expects revenue in 2008 will decline by 1% (compared with Nortel’s forecast of low single-digits).

“Macro challenges, the problems at Sprint (S) and the lack of urgency from carriers such as Verizon may make top-line growth this year difficult,” he said.

More: Market Intelligence Center has some more thoughts on Nortel, which touch a 52-week low of $5.41 earlier in the day.

Alaska Communications Deal

Alaska Communications selected Nortel to provide a 40G optical network that will be part of an undersea fiber-optic cable from Alaska to Oregon. The new network will let ACS deliver services to corporate and residential consumers between Alaska and the lower 48 states.

“Like consumers all over the world, ACS customers want to run bandwidth-intensive applications like Internet video, social networking sites, and advanced business services,” Philippe Morin, president of Nortel’s Metro Ethernet Networks, said in a statement. “Nortel’s 40G/100G solution allows ACS to cost-effectively deliver the capacity to meet these needs in a unique geographic environment, over various qualities of fiber and across long distances.”

Last week, Nortel unveiled a deal to provide 40G optical technology to Bell Canada.

IBM To Acquire Nortel?

There are rumors - and I stress rumors - that IBM is going to acquire Nortel.

Yup, that’s the speculation that has reportedly been gaining a lot of traction. Don’t ask me where I heard this rumor but I’ll try to provide more details as they emerge.

With Nortel trading at $5.90, IBM is looking at a $2.93-billion acquisition, not including a takeover premium. So perhaps we’re looking at a $3.5-billion to $4-billion deal.

Nortel and IBM are no strangers. In 2005, they signed an agreement to collaborate on the design and development of new products, while creating a Nortel-IBM Joint Development Center in North Carolina.

As well, Nortel’s chief marketing officer, Lauren Flaherty, spent 26 years with IBM before joining Nortel in 2006.

Nortel and IBM have signed an agreement to collaborate on the design and development of new products and services, the companies announced Friday.

As part of that agreement, the two companies will establish a Nortel-IBM Joint Development Center in North Carolina.

Comments

[13958:]

IBM-Nortel "buy-out? Wow, that would be great..........at least we would have a solid IBM paying "bottom" $'s for a "former Canadian star".
I lost a bundle on this one way back, so maybe I will recover a tiny portion of my losses AND get a dividend to boot!
What a misery!

2008 Sep 09 10:53 AM

[BigHarv:]

Sooo, here it comes......another loser Company dropping 90% of it's value, only to be bought out for peanuts while the stockholders suffer. Sound familiar??? Try that infamous fibre-optic company a year or so ago. Blah!!!

2008 Sep 12 12:11 AM

[mills:]

yea go nortel, what az great company!!!!

2008 Sep 15 07:28 PM