Any guess on what shareholders could get if the company is broken up and sold off?
duncan
· 12 months ago
It depends what they sell the assets for! Sorry for the obvious answer, but EVERYTHING hinges on that datum.
Duncan
Joeyve
· 12 months ago
I understand what you are saying Duncan. I guess what I am getting at is there must be some value to this company. It has to be worth more than what it presently trades at and surely not the "zero" that Kris Thompson at National Bank values Nortel at.
duncan
· 12 months ago
Let's say I am right and cash at year end 09 is about $1.5B. Debt of $4.5B and pension deficit of $2.5 means that buyers of Nortel (in whole or in pieces) need to pay MORE than $5.5B in aggregate for common shareholders to see a penny.
If the CDMA collapse is not tempoary then Carrier Networks might be worth $2B. Enterprise might be worth $2B (Avaya-like multiple) and MEN $1B.
uh -oh...that isn't more than $5.5B.
The above multiples are not punitive given lack of growth prospects and negative margins.
buyonbadnews
· 12 months ago
So do you still stand behind your comment the other day that " Nortel should sell itself off in as many bits for as much money as possible"? If so, why bother? If the company is worthless, where do they go from here?
duncan
· 12 months ago
I could be wrong -- if they can sell the parts for more money (or get the acurors to take debt or pension costs) then maybe the sum of the parts is more than the liabilities.
the math is pretty easy -- every $500 million that NT gets over $5.5B is a buck to common shareholders. there is lots of leverage if I am being too pessimistic or if markets improve.
Another Nortel Watcher
· 12 months ago
I know I sound like a broken record BUT...
...get Zafirovsky, Hackney, and Lowe out of there, replace them with recognized people who speak the language and can architect a more detailed view of the future, and the stock will quickly trade at multiples of today's value based on confidence alone.
Fins
· 12 months ago
Who would that be? Just curious. (Not being a smart aleck by any means) Most of the guys that got beat at the voip game at NT are now over in the Cisco voice group. Avaya is hiring Cisco folks. It's musical chairs. I speak in enterprise context only. I don't claim to be a carrier guy.
NewAge
· 12 months ago
There were some rumors that IBM is going to acquire Nortel. And as I read on September IBM offered $6-7B for NT.. Yup, that’s the speculation...
fx
· 12 months ago
NT is selling itself to NokiaSiemens
Big meeting in Munich this week
NewAge
· 12 months ago
Is this also a speculation?
fx
· 12 months ago
NO, it is a real fact. Second presentation to NSN
NewAge
· 12 months ago
Do you have any web link regarding to this news? Or is it just an internal announcement?
fx
· 12 months ago
these things are not announced until they are fully baked... still in back burner
NewAge
· 12 months ago
NSN faces "critical time" also.. There will be cut offs...
Nokia Siemens To Cut 1,820 Jobs In Finland, Germany.
I don't agree with your valuation of Nortel's business units
you assume value of the ES unit at about $2B(Avaya-like multiple) but Avaya was actually taken private at about 1.7 x sales or $8.2 B.Nortel's ES revenue is about $2.5B,if we applied an Avaya multiple- Nortel's ES would fetch just over $4B double your figure.Furthermore with MEN being a growing division at least longer term,then it deserves a multiple of at least 1 x sales or about $1.5 .You also said that Nortel's customers would start defecting at an increased pace-if you look at their book to bill for MEN it came in at 1.08 which indicates strong growth,in other words even with the announced intention of wanting to sell MEN,their book to bill would indicate anything but defection.
Nortel's CDMA business,although a dying one is worth more to Nortel than what they could get selling it,after all any interesested buyers could use the -well this is a business on the decline argument to pay next to nothing for it-an good analogy for this would be my older car that I have where I just spent $3k on it and its listed value is not more than $2800,but since I kept this car in good shape from the very beginning I know that the $3k I spent on it will serve me better by driving it to the end than trying to get that back with a sale of the car.
Finally there is the issue with Nortel's deferred tax assets which stood at $6.8B as of Sept 30/08,I believe that with the right buyer some of these deferred tax assets could be of good use and represent value if propperly applied.
The cash burn for me is still an unknown for many obvious reasons and with the latest restructuring,this should help alleviate some of this concern to the tune of $400 million according to Nortel.
You seem to have used a bare bones calculation on valuation and I can't blame you after all you have a sell side point of view,but I beg to differ and feel that if Nortel could manage through this period reasonably well,then I think they could get better value for their units when the credit markets ease up.
Nortel watcher
· 12 months ago
Clearly, from the info. shared with analysts on the Q3 call this a.m., the executive leadership and BoD at Nortel see no urgency whatsoever in raising the share price. NT employees are going to continue to see cash hemorrhaging into the pockets of these two groups as they await their eventual layoff. What a sorry state for any company.
NTEmployee
· 12 months ago
It seems a lot like these plans are being made up on the fly. Nortel didn't suddenly lose money, it isn't as if some customer just forgot to play their bill this quarter. Why is it that it is going to take another six months to put these plans into place when it should have been planned and underway already?
NTEmployee
· 12 months ago
I guess I can reply to my own comment and say, as was noted in the blog posting, that the recurring one time charges that the company has been posting for years, aren't really one time charges, but a lack of planning would appear to be evident because of that fact.
protosphere
· 12 months ago
Wouldn't this make Nortel shares worth below zero given Kris Thompson based his assumption on a higher cash balance, perhaps as low as $2.6B, that came in even lower at $2.3B?
They have no traditional trailing P/E or it would be negative to a substantial double digit multiple.
Mr. Stewart has well illustrated how car wrecks are worth more in parts than as a whole, albeit no where near as lucrative a return with Nortel as he experienced with his VW bargain understandably, ( I had plenty of those myself as a kid to travel to Hamilton's Mac and back, they were great at maintaining a value, ahem, anyways) or as any car wrecker may attest, worth more in parts than as a whole to be sure. Yes.
However, is it it worth the risk to gamble on a sale given history, trend, and inability to sell their very key unit Metro Ethernet Networks. If they can't even sell this? Let alone the rest of their luggage catalyzing in downward spiral as an aggregate if not also in parts, to be worth anything to anyone generating no profit or am I missing something here?
Not trying to patronizing but what I feel are this industries top commentators Mark, Duncan, and Simon Avery are too just too damn polite. <group hug> Or maybe I am just too grouchy because I do not like Nortel. God bless guys, you have exponentially more admirable tolerance and diligence than I =)
LongLiveNortel
· 12 months ago
this web site is a sham. All the scare mongering and rumours have been proven to be wrong. What gives the two bit commentators on this site anymore insight to how the company is doing then those running the company? Its clearly a systematic and concerted effort to pull Nortel down by casting fear into the weak minded.
as far as the stock market goes, if you place credibility on those running wall street then you are bigger fools than what I initially thought.
have a nice day and hope you choke on your lies.
NTEmployee
· 12 months ago
Somebodies been drinking the green kool-aid today.
protosphere
· 12 months ago
my goodness
=)
Tongue.In.Cheek
· 12 months ago
I'm beginning to believe this blog is dependent on negative commentary so that it can drive more traffic which in turn delivers more advertising revenue back to the blog. Sometimes there is useful conversation and sometimes it's nothing more than false statements. These are troubled times for Nortel and I personally was hoping for more today.
less
· 12 months ago
"if you place credibility on those running wall street then you are bigger fools than what I initially though[t]"
We should as Mikey says, not as he does. Sounds genius,
LaPutaquetePario
· 12 months ago
Como la Cagaste Mikey
Nortel watcher
· 12 months ago
what does that mean? are you an employee or an investor?
joremero
· 12 months ago
it means: Mike, you screwed up really badly (that's in nice words ;) )
arthur_n82
· 12 months ago
MAN YOU WERE HARSH WITH THAT REVIEW .. SO YOU ARE CONVINCED NORTEL IS 100% DOOMED ??
protosphere
· 12 months ago
Harsh? You have to be kidding right? Why didn't you specify exactly what you felt was so harsh? So it might be addressed!
LongLiveNortel was harsh instead if you ask me. He did not state what he disagreed with either. Just a cowardly hit and run personal attack to the bearers of bad news. This does not make the facts disappear. Only detracts from its reasoning or credibility. Its post speaks for itself.
That facts are not pleasant (harsh) and if you do not believe me you can look at the stock chart today (also harsh). Down 18% (harsh) and under a buck delisting territory,(harsh, harsh, harsh). Personally, I would rather hear the harsh truth than happy talk lies. If you want to see even harsher facts, wait until next quarter or in the not too distant future when the blatant math indicates they will be out of money by 2011 some say and where I most strongly disagree in that it will be much, much sooner. I am 100% sure they are doomed if that helps=) ( call it harsh )
As for LongLiveNortel kindly excuse my telling it to please just STFU, thankyou with sugar on top. =)
rr
· 12 months ago
go back to your cave in john chambers behind you scumbag
bubbles2007
· 12 months ago
I like your base case analysis. Surprisingly, your assumptions are reflected in the current share price...with a small premium to cover the possibility of a break up or outright sale. A lot can happen between now and 2011.
Using liquidation value always yields the lowest possible valuation. We could apply the same reasoning to companies such as Sun, Alcatel or Motorola, who are also burning cash. The walking wounded.
I also wonder how to justify paying a premium for CSCO. ...if the total enterprise value for NT is $5b, roughly 0.5x sales then can CSCO really be worth 2.5x sales...
Lonely Ops Guy
· 12 months ago
I read previous posts/comments and none of them touches the real issue.
What does Nortel bring to the table? That’s the real issue.
Carrier, Enterprise, Services, cost cutting…. I don’t really matter….
What the Customer wants to see is a product that is technically sound, good and fair prices, a proactive support staff, quick delivery and installation turnaround and the warm feeling that the vendor will be around for at least another 5 years.
Let’s look back at Nortel for a bit. What a 100+ years company is proud of? Its history. It’s legacy to the telecommunications industry. During the Fiber World, the planning cycle to plan, install and generate revenue with a DMS was around 5+ years at least. NT was proud of "maximizing operators capital spending" allowing functionality upgrades using the same DMS frames and shelves over and over again. Until four years ago, I had a customer that still had a DMS with a JNET still working, believe or not. Equipment was manufactured to last 10 years, at least.
However, things change quickly. The equipment cycle nowadays is around 2 years including plan, sell, install and generate revenue with that equipment. This is because of the quick technology evolution and equipment commoditization that dropped prices to the floor.
Today it’s much easier to put all your old equipment in the trash and buy a brand new one. Customers do not want equipment that will be in their plant for 5 years anymore and that’s because in two years, it will become obsolete.
So this legacy issue we talk and we are so proud of it is what is bringing this company to its knees. NT still thinks the old way. If you look behind a PDTC, it still has wire wraps. How old can that be? And all NT supply chain has the mentality of 20 years ago. Even if new blood in the company do not have a 20 years ago mentality, they have to struggle and fight against this legacy from the past in their activities. For example: to “engineer” is to put together an equipment list from a pool of 50000 manufacturing codes in a way Customers can call it a “solution”. How can a company today track and maintain suppliers for 50000 different manufacturing codes? Can you imagine how difficult it is to translate this into a PO? Or in to a bill of materials to ship it overseas? Or in to a spares management deal?
To make matters worse, this same legacy mentality has contaminated the NT Enterprise world, which had to be a much leaner, faster and agile organization to survive the competition. Associate this with a total lack of a uniform channel partner strategy to sell the Enterprise products and that’s the recipe for low revenues and lack of market penetration.
Now, the cherry on the sundae: add the technology challenges listed above to the financial difficulties from the past 10 years. And since now you do not trust anybody in the organization anymore and you want to have “control”, you take away all of the power from the first line managers and employees and penalize them by taking plastic cups out of the cafeterias and allow execs flying business. The result is, instead of contributions to the business from the people that are in direct contact with the Customers and the day-to-day challenges you have now an army of zombies (at least controlled zombies) that aren’t allowed to make decisions on their own and are now sitting and waiting for the orders from above or using the lack of the power to make decisions to blame someone else.
So going back to the initial paragraphs of this long post…everything discussed so far are just smoking mirrors. Talk about financials, results, numbers, cost cutting, whatever. Shuffle people here, there, anywhere. Restructure all the way you want.
At the end of the day, there is not a single line in the corporate announcement that states any strategy pointing in the direction of “When will I drop all of this iron-ball-attached-to-Nortel's-leg legacy crap?” and “How do I align the organization to what Customers really want?”
And if both questions above are not addressed soon, we will unfortunately have to bid Nortel farewell and remember it only from the history books.
Lonely Ops Guy
· 12 months ago
For a tech company so proud of its past tech feats, it is emblematic to see the the CTO leaving and the CFO gaining more and more power each day. Something is fundamentally wrong with this picture.
Mr Real
· 12 months ago
every CIO will tell you how they HATE to have to replace equipment every two years. they are happy to invest in equipment that allows for continuity and better ROI. that's why cisco, juniper, IBM, HP and many others are selling their big chassis so well. all they do is add or upgrade blades every once in a while. so those who still know what ROI is all about can deliver and sell solutions that customers want, even though technologies change quickly these days. what could save this company isn't cost cutting to profitability. it just is not. i know MikeZ would disagree, but I KNOW BETTER :) remember apple some time ago? it was a perfect example of a dying company. then, with a good idea and some leadership, ONE PRODUCT was born and SAVED that company. not only SAVED it but gave it a foundation to become powerful, relevant (and so ignorant and full of $#it, i must add) player in the industry. THIS IS WHAT NT NEEDS! a few years ago when I was still at NT they had "the idea forum" or something like that. it was where one could go in online and submit an idea. I did. I never heard back from anyone. I pushed it up the chain. No result. every day routine was way more important. cost cutting, etc. I believe that was the idea that could and perhaps (but not likely) still could save NT. A single product that would change the world of communication as we know it (for sure!) and perhaps even (i know it's a long shot) give NT another chance! If MikeZ wants to hear that idea again I'm available, but this time it's going to cost big bucks. Not because I'm greedy, but because I learned one thing . . . when you give someone a good idea for free, it's never good enough. It can only be good if it costs an arm and a leg! That must be true because efficient market hypothesis says it is :)
protosphere
· 12 months ago
ah, you're talking Enterprise, OK,.. gotcha
I liked what you wrote here: "For example: to “engineer” is to put together an equipment list from a pool of 50000 manufacturing codes in a way Customers can call it a “solution”. How can a company today track and maintain suppliers for 50000 different manufacturing codes?"
If I might expand on this with my view, in connection with their large installations, they are ALL customized "solutions" to the extreme where Nortel reinvents the wheel for every order. Unlike their peer who uses standardized templates. The simple modifications to customize each order make it exponentially less arduous and time consuming than starting from scratch each time. No wonder their costs are so high!
Add the number of Chiefs to Indians in the soup and I would dare to say they are run cost inefficiently here too but who can afford these upper level layoffs, then, now, let alone into the not too distant future. =)
There should also be no excuse to lacking proficiency given they outsource and their costs still remain so high for this long. One post I read here listed the problems in delay having sold their manufacturing and having to now deal with an external company.
I don't care what Nortel says, they have zero credibility in my eyes now and I disregard any word they say amid endless contradiction. Management is green and was missing in action during the telecom wars. Even though it is was this this very manufacturing process that needed to be addressed, one Mike should have mastered given his background in manufacturing or the track record he was hired for, specifically in this area.
Mike couldn't be all things to all people, like supply chains, sales, etc... As lovable a guy as Mike is, I fear they may have needed a different caliber CEO but once then the position was hard to fill from inception. He may have done a great job cutting costs in other places in all fairness but Nortel needed a superman.
I dunno, seems like Murphys Law got the better of them, they could have been a contender, but so much cascaded after the accounting irregularities that it made normal people working hard look like they were tripping over their feet. As I said, the roles were hard to fill in finding good people.
The rest I've reiterated in the most obvious usually being the most truthful and feel this time of mourning is no time to elaborate. The eulogy would be horrifying enough to surely make a hardened criminal cower =).
Lonely Ops Guy
· 12 months ago
Proto: When Joel “The Womanizer” Hackney got on board, during his very first Vegas Sales Conference, this was the first thing he brought up in that stage. That he was going to simplify supply chain and reduce the 60K PEC codes to something around 20K in the next year or two. This was back in 2005. I have to confess that I believed him for a while. I should have noticed that something was wrong when he start pursuing the 48 hours metrics. From there, it was downhill…….. What a shame……
NewAge
· 12 months ago
40G and 100G could be the technology which save Nortel. But they have already decided to sell MEN.. Maybe needs another one/technology/product
Anyway, MR Real, well stated.. Noone care about your ideas if they are free..
Lonely Ops Guy
· 12 months ago
Mr. Real: That's an excellent start. Drop the Carrier business, drop 20K staff and focus on Enterprise business where, if NT acts quickly, it might stand a small chance.
Lonely Ops Guy
· 12 months ago
Mr. Real "when you give someone a good idea for free, it's never good enough." I agree 100%. I too, have sent numerous suggestions via "channels" that would supposedly reach the higher echelons. Never heard back anything. What a shame.........
The Left Behind
· 12 months ago
Have you heard that they put the CIO in charge of enterprise sales for the Americas? what qualifications does this guy have? it is a huge liability to put a guy that has no clue (whats new) in charge of the largest revenue for Enterprise?
Mr Real
· 12 months ago
Heroic work by the CFO??? I guess all it takes these days at NT to be a hero is to be able to keep the wallet zipped for a little while. All I hope for is that they aren't cooking the books too much these days. I am with you on the bogus "one time" charges. How many times is one time??? At this point i'd argue that Nortel's business model is "cut costs to reduce the bleeding". If this is a business model then those "one time charges" aren't one time at all, but rather "cost of doing business". Funny thing is, even with the funny math things are still pretty obvious, so, as one of my NT buddies used to say, why lie?
more
· 12 months ago
Duncan,
Well stated.
Nortelhand
· 12 months ago
Guys,
Nortel is in a fight for its life. Only time will tell if it makes it out. But if history is any indication, Nortel is doomed. I hat to say that, but it is very true and we all know that.
exnt2
· 12 months ago
like I said, this means that there is no cash to pay people severances now. they have to wait for the MEN fire sale to get some cash to borrow money from Peter to pay Paul.
Nortel employees I bet are a bit relieved that its 1300 not 5000 or 10000 as expected. They will get comfortable only for a major upheavel later. That is reality.
Hanging onto 1 billion for operating cash is scary. I'd say bankruptcy is around the corner, coming soon to a Nortel location near you.
Nortel watcher
· 12 months ago
exnt2,
I wonder if you could answer the following: In the event of a bankruptcy filing followed by layoffs, would NT be obligated to follow precedent and pay severance? If not, then those on the payroll today may see a benefit indeed with being layed off today vs. some time in the future.
exnt2
· 12 months ago
under bankruptcy protection creditors cannot come after Nortels assets, cash, inventory etc. So if it does file bankruptcy and lays off people, they become very much like creditors. They cannot be paid. The absolute minimum legal obligation is 1 week for every year if some cash was allocated.
If not paid, laid off employees can go to court but since the company is under protection, they cannot get nothing. This is also unsecured like shareholders meaning last to get paid out if anything is left from asset liquidation if it happens.
It makes sense to take cash now. But the company cannot afford to hand out a lot of money upfront. 1300 jobs is 300 million. 5000 is 900 million. Tough situation looking at cash.
With debt coming up in 2011, zero liquidity, no positive cash flow (from profit), you can very quickly see this going to chapter 11.
The $10 billion revenue will dry up 2009 as customers move away from risk. Its bound to happen. Even optical the golden goose would be killed off until it gets sold.
Tongue.In.Cheek
· 12 months ago
How in the world do you come up with a Cash Burn value of $2.3 Billion in 2009? Most analysts are suggesting around $800 Million. How do you get to a number approx. 300% greater than the worst case analyst projections?
Duncan ... if you are reading this, can you offer any reasonable explanation on how Nortel could burn $2.3 Billion in cash in 12 months? Seems to me to be a very far fetched assumption from an ex-Nortel employee with a grudge.
exnt2
· 12 months ago
300 mill a quarter which is 1.2 billion + debt payments + deferred taxes + accounts payable etc. read the income statement and cash flow staements before you start posting.
even if you go to 800 million like you said they are still out of cash.
I dont have a grudge as you incorrectly point out. Just portraying whats likely to happen.
also to add there are pension woes too if chapter 11 does happen. it could result in claims getting 15 cents per dollar.
Tongue.In.Cheek
· 12 months ago
You're blowing smoke. Let's look at any deal and how cash works from the deal. Nortel earns revenue and receives cash from the customer. There is Cost Of Goods Sold, which is the expense cost of raw materials etc. to build the product. That cost is part of Accounts Payable and paid from the proceeds of the deal. Revenue - COGS = Gross Margin. We know that Nortel gets about 40% Gross Margin across their deals.
Now what to do with that 40% Gross Margin that comes in as cash. They pay debt interest as there is no meaningful debt payment due until July, 2011. On Deferred Taxes, I'm not sure exactly how that works, nor do I fully understand the tax burden on a company reporting a loss. That was part of the Tax Credit writedown yesterday right.
Your assumptions essentially draw the conclusion that Nortel will not gain much revenue and essentially zero Gross Margin for your forecast to be true. It is pretty clear to see that would be a clearly false statement.
duncan
· 12 months ago
Most analysts are thinking around $800 million cash burn. I am a bit more pessimistic and think it could be closer to $1B...but I have some unusually negative views on the global economy, CDMA and telecom spending.
One reason where exnt2 might be going wrong is annualizing the Q3 numbers. From a CASH perspective they got hit with a couple of things that a (for a change) truly unusual. Plus Q3 is historically a weak quarter in terms of cash cycle, Plus NT has a fair chunk of deferred revenue flowing through the income statement. Those 'revenues' are real...but they cash for them was received some time ago. In other words, as these deferred revenues drop off the QUALITY (from a cash generating perspective) of NT's revenues will increase.
Does that help?
yes4aapl
· 5 months ago
Plus NT has a fair chunk of deferred revenue flowing through the income statement. Those 'revenues' are real...but they cash for them was received some time ago. In other words, as these deferred revenues drop off the QUALITY (from a cash generating perspective) of NT's revenues will increase. ======= re In 2008 Nortel_CFO recognized around $1.3 Bill in deferred revenues. Some of them /how much?/ were placed into def. rev section during restatements of 2000-2003 In those restatements Nortel placed $3.5Bill into deferred revenues. Question is Where is missing $2.5 bill or more in deferred revenues? Did deferred revenue recognition misled public_analysts about real business in 2008? In other words If 2008 were as good as Mike Z tried to paint it why Nortel is in BK now? Class action law suit is real. Parliament wants to know about bonuses in 2008 and I guess in 2009. What was the Word? Summon Summon
exnt2
· 12 months ago
you forgot a major expnse - your salary. 40% GM goes to pay R&D, SG&A each at roughly 20% of sales and other expenses. cash flow negative buddy. cash flow negative. find out one statement in the past 5 years where they were cash flow positive. maybe the one where Z got his little bonus.
Revenue has already fallen to below 10 billion and will continue in steep decline. are you one of those who estimate 3% YoY CDMA decline when it is 30%. ooops. ouch hurts does it not.
With capital expenses now at a minimum, MEN sales delayed due to long sale process and CDMA going down faster than a rock, no major LTE deployment for a couple of years, I'd say a really optimistic forecast is 9 billion. more likely 7-8 billion. if the economy is as bad or worse than it is, this could even tank to 6-7 billion. the middle line, interest, taxes etc. still remain the same.
some of nortels largest customers are gone. morgan stanley, bear stearns, lehman. thats a lot of accounts receivable that will get written off. there are more bankruptcies coming and unless there is a way to get payment, there definitely will be a lot more bad debt.
It clearly looks like Pavi is cleaning house with two back to back quarters of heavy losses. So the writing is pretty much on the wall.
Disagree with Duncan. Usually Q3 and Q4 are strongest quarters for Nortel. Q3 really tanked big time. Q4 will be as good or worse around $2 or 2.3 billion.
nt to open at 0.90. if this dips and gets kicked off the exchange, do the shares become useless?
duncan
· 12 months ago
No -- there are lots of Canadian tech companies that trade on the TSX only and not the NYSE. The $1 limit is New York only.
In fact, given NT's market cap, a NYSE listing is probably an unnecessary expense.
ian stewart
· 12 months ago
Actually, getting the old VW was an attempt to provide Duncan with some cheap transportation to UBC. But it turned out that the whole underside of the car was rotted out, so we switched to taking it apart so he could learn how a car works, as he was thinking of becoming an engineer.The sale of the parts idea came along last, and might be one reason he is in the securities game.
duncan
· 12 months ago
There is, after all, a long and noble history of UBC Engineers doing things to old Volkswagens!
I am researching the history of the Duncan Stewart & Co in so far as its interests in Cuban sugar refinery, in specific Camaguey (1880-1920) and also in specific to Duncan (1846-1904) and his sister Christina (1841) Stewart born of Peter (1804-1864)and Elisabeth (1811) Stewart. I am wondering if you are related to that branch of the family. There is a John Stewart (b. abt. 1836 Kincardine) born of Peter’s second wife, Janet (1814) while she was married to Peter’s brother. I am trying to discover more about him. I believe he was a close friend of my great grandmother, Emily Blackwell (1854-1937), who, it has been demonstrated or suggested, lived at one time or another in Dorchester, NB; Moncton, NB; Montreal, QC; Roanoke, VA; Lynn, MA; Savannah, GA; La Gloria, Camaguey, Cuba; and Fort Wayne, IN.
Thank you for your time in reading this. I hope you can help me.
C'man Nortel is losing around $500 mill in new orders each and every quarter. The math is simple 4 quarters it is $2 bill less for the revenue in 2009! in addition NT is recognizing deferred revenues in big chunks; in Q3 2008 it was another $200 mill plus $680 mill in H1! deferred rev does not bring new cash to the table, does it? (in Nortel case) How much cash NT will lose in 2008? at Dec 31 2007 there was about $3.5 bill as I remember. For Dec 31 2008 it is expected to stay at $2.3 bill, $1.2 bill gone! 1300 job cuts will save $400 mill. What's that? It fixes nothing! It's not the restructuring Mike Z expected to do. It's not restructuring which should be done? So what happened? My understanding is that because Mike was not able to sell MEN for cash there is not enough money to do proper restructuring. Total failure, total catch 22!
Nortel watcher
· 12 months ago
yes4, does NT have to pay severance each time they do a new round of layoffs? are they legally bound to always open the checkbook just because they did so in prior rounds?
yes4aapl
· 12 months ago
It's a written agreement between Nortel and each employee_engineer. As long as Nortel is not bankrupt they have to fulfill the obligations,. How many engineers is left there? I assume around 13000 and high level managers and well paid employees; around 6000? Nortel is not able to do restructuring on its own to the level it is needed. I've been repeating that assumptions for years. Only BK would take care of it.. Today CC was a joke, smoke and mirrors. It's not what Mike Z said on Sep 17 2008. Today Nortel has just admitted another failure, failure to plan and execute restructuring to make the corporation focused, lean and profitable. I don't see focus! I don't see much lean, just 300 job cuts in 2008. I don't see Profits coming! I see customers are running away scared. I don't see customers will be happy that Nortel is still in all the businesses with lower employment_less service. Remaining employees won't be happy to take on more duties. Financial institutions won't be happy seeing cash melting like snow in the Spring!. The pressure is rising! NT trading below $1 is another issue, is it not?
Mr Real
· 12 months ago
I think this is incorrect. I believe NT is only obligated to pay some sort of severance package in some states, like Mass. I believe they do it to avoid lawsuits. I assume employees who receive a package have to sign some agreement not to sue in return. When I was hired by NT as employee_engineer in 99 the agreement was "employment at will", NT had no obligation to pay severance if they laid me off. Unfortunately they didn't so i didn't get a package and can't tell you what I would have signed to get it :) If you are talking about senior management, then the situation is completely different. Employment contracts are negotiated on a case by case basis and you can be sure that company is on the hook to pay huge packages, pensions, etc.
laidoff
· 12 months ago
they have to pay unless it is a performance issue that is well documented. since there is no documentation, they usually pay it out. HR does not even have performance records so there is no history.
they can transfer employees sold to another company. the other company has to keep the service with nortel if they layoff. or a new employment agreement that guarantees employment for some time.
a lot of these are also deferred to keep cash flow. so if the company goes bankrupt, these are unsecured and you to back to the line of all creditors.
All Comments
Duncan
If the CDMA collapse is not tempoary then Carrier Networks might be worth $2B. Enterprise might be worth $2B (Avaya-like multiple) and MEN $1B.
uh -oh...that isn't more than $5.5B.
The above multiples are not punitive given lack of growth prospects and negative margins.
If the company is worthless, where do they go from here?
the math is pretty easy -- every $500 million that NT gets over $5.5B is a buck to common shareholders. there is lots of leverage if I am being too pessimistic or if markets improve.
...get Zafirovsky, Hackney, and Lowe out of there, replace them with recognized people who speak the language and can architect a more detailed view of the future, and the stock will quickly trade at multiples of today's value based on confidence alone.
Just curious. (Not being a smart aleck by any means)
Most of the guys that got beat at the voip game at NT are now over in the Cisco voice group. Avaya is hiring Cisco folks. It's musical chairs. I speak in enterprise context only. I don't claim to be a carrier guy.
Yup, that’s the speculation...
Big meeting in Munich this week
Nokia Siemens To Cut 1,820 Jobs In Finland, Germany.
http://www.informationweek.com/news/management/...
I don't agree with your valuation of Nortel's business units
you assume value of the ES unit at about $2B(Avaya-like multiple) but Avaya was actually taken private at about 1.7 x sales or $8.2 B.Nortel's ES revenue is about $2.5B,if we applied an Avaya multiple- Nortel's ES would fetch just over $4B double your figure.Furthermore with MEN being a growing division at least longer term,then it deserves a multiple of at least 1 x sales or about $1.5 .You also said that Nortel's customers would start defecting at an increased pace-if you look at their book to bill for MEN it came in at 1.08 which indicates strong growth,in other words even with the announced intention of wanting to sell MEN,their book to bill would indicate anything but defection.
Nortel's CDMA business,although a dying one is worth more to Nortel than what they could get selling it,after all any interesested buyers could use the -well this is a business on the decline argument to pay next to nothing for it-an good analogy for this would be my older car that I have where I just spent $3k on it and its listed value is not more than $2800,but since I kept this car in good shape from the very beginning I know that the $3k I spent on it will serve me better by driving it to the end than trying to get that back with a sale of the car.
Finally there is the issue with Nortel's deferred tax assets which stood at $6.8B as of Sept 30/08,I believe that with the right buyer some of these deferred tax assets could be of good use and represent value if propperly applied.
The cash burn for me is still an unknown for many obvious reasons and with the latest restructuring,this should help alleviate some of this concern to the tune of $400 million according to Nortel.
You seem to have used a bare bones calculation on valuation and I can't blame you after all you have a sell side point of view,but I beg to differ and feel that if Nortel could manage through this period reasonably well,then I think they could get better value for their units when the credit markets ease up.
They have no traditional trailing P/E or it would be negative to a substantial double digit multiple.
Mr. Stewart has well illustrated how car wrecks are worth more in parts than as a whole, albeit no where near as lucrative a return with Nortel as he experienced with his VW bargain understandably, ( I had plenty of those myself as a kid to travel to Hamilton's Mac and back, they were great at maintaining a value, ahem, anyways) or as any car wrecker may attest, worth more in parts than as a whole to be sure. Yes.
However, is it it worth the risk to gamble on a sale given history, trend, and inability to sell their very key unit Metro Ethernet Networks. If they can't even sell this? Let alone the rest of their luggage catalyzing in downward spiral as an aggregate if not also in parts, to be worth anything to anyone generating no profit or am I missing something here?
Not trying to patronizing but what I feel are this industries top commentators Mark, Duncan, and Simon Avery are too just too damn polite. <group hug> Or maybe I am just too grouchy because I do not like Nortel. God bless guys, you have exponentially more admirable tolerance and diligence than I =)
as far as the stock market goes, if you place credibility on those running wall street then you are bigger fools than what I initially thought.
have a nice day and hope you choke on your lies.
=)
We should as Mikey says, not as he does. Sounds genius,
Mike, you screwed up really badly (that's in nice words ;) )
Why didn't you specify exactly what you felt was so harsh? So it might be addressed!
LongLiveNortel was harsh instead if you ask me. He did not state what he disagreed with either. Just a cowardly hit and run personal attack to the bearers of bad news. This does not make the facts disappear. Only detracts from its reasoning or credibility. Its post speaks for itself.
That facts are not pleasant (harsh) and if you do not believe me you can look at the stock chart today (also harsh). Down 18% (harsh) and under a buck delisting territory,(harsh, harsh, harsh). Personally, I would rather hear the harsh truth than happy talk lies. If you want to see even harsher facts, wait until next quarter or in the not too distant future when the blatant math indicates they will be out of money by 2011 some say and where I most strongly disagree in that it will be much, much sooner. I am 100% sure they are doomed if that helps=) ( call it harsh )
As for LongLiveNortel kindly excuse my telling it to please just STFU, thankyou with sugar on top. =)
Using liquidation value always yields the lowest possible valuation. We could apply the same reasoning to companies such as Sun, Alcatel or Motorola, who are also burning cash. The walking wounded.
I also wonder how to justify paying a premium for CSCO. ...if the total enterprise value for NT is $5b, roughly 0.5x sales then can CSCO really be worth 2.5x sales...
What does Nortel bring to the table? That’s the real issue.
Carrier, Enterprise, Services, cost cutting…. I don’t really matter….
What the Customer wants to see is a product that is technically sound, good and fair prices, a proactive support staff, quick delivery and installation turnaround and the warm feeling that the vendor will be around for at least another 5 years.
Let’s look back at Nortel for a bit. What a 100+ years company is proud of? Its history. It’s legacy to the telecommunications industry. During the Fiber World, the planning cycle to plan, install and generate revenue with a DMS was around 5+ years at least. NT was proud of "maximizing operators capital spending" allowing functionality upgrades using the same DMS frames and shelves over and over again. Until four years ago, I had a customer that still had a DMS with a JNET still working, believe or not. Equipment was manufactured to last 10 years, at least.
However, things change quickly. The equipment cycle nowadays is around 2 years including plan, sell, install and generate revenue with that equipment. This is because of the quick technology evolution and equipment commoditization that dropped prices to the floor.
Today it’s much easier to put all your old equipment in the trash and buy a brand new one. Customers do not want equipment that will be in their plant for 5 years anymore and that’s because in two years, it will become obsolete.
So this legacy issue we talk and we are so proud of it is what is bringing this company to its knees. NT still thinks the old way. If you look behind a PDTC, it still has wire wraps. How old can that be? And all NT supply chain has the mentality of 20 years ago. Even if new blood in the company do not have a 20 years ago mentality, they have to struggle and fight against this legacy from the past in their activities. For example: to “engineer” is to put together an equipment list from a pool of 50000 manufacturing codes in a way Customers can call it a “solution”. How can a company today track and maintain suppliers for 50000 different manufacturing codes? Can you imagine how difficult it is to translate this into a PO? Or in to a bill of materials to ship it overseas? Or in to a spares management deal?
To make matters worse, this same legacy mentality has contaminated the NT Enterprise world, which had to be a much leaner, faster and agile organization to survive the competition. Associate this with a total lack of a uniform channel partner strategy to sell the Enterprise products and that’s the recipe for low revenues and lack of market penetration.
Now, the cherry on the sundae: add the technology challenges listed above to the financial difficulties from the past 10 years. And since now you do not trust anybody in the organization anymore and you want to have “control”, you take away all of the power from the first line managers and employees and penalize them by taking plastic cups out of the cafeterias and allow execs flying business. The result is, instead of contributions to the business from the people that are in direct contact with the Customers and the day-to-day challenges you have now an army of zombies (at least controlled zombies) that aren’t allowed to make decisions on their own and are now sitting and waiting for the orders from above or using the lack of the power to make decisions to blame someone else.
So going back to the initial paragraphs of this long post…everything discussed so far are just smoking mirrors. Talk about financials, results, numbers, cost cutting, whatever. Shuffle people here, there, anywhere. Restructure all the way you want.
At the end of the day, there is not a single line in the corporate announcement that states any strategy pointing in the direction of “When will I drop all of this iron-ball-attached-to-Nortel's-leg legacy crap?” and “How do I align the organization to what Customers really want?”
And if both questions above are not addressed soon, we will unfortunately have to bid Nortel farewell and remember it only from the history books.
so those who still know what ROI is all about can deliver and sell solutions that customers want, even though technologies change quickly these days.
what could save this company isn't cost cutting to profitability.
it just is not.
i know MikeZ would disagree, but I KNOW BETTER :)
remember apple some time ago? it was a perfect example of a dying company. then, with a good idea and some leadership, ONE PRODUCT was born and SAVED that company.
not only SAVED it but gave it a foundation to become powerful, relevant (and so ignorant and full of $#it, i must add) player in the industry. THIS IS WHAT NT NEEDS!
a few years ago when I was still at NT they had "the idea forum" or something like that. it was where one could go in online and submit an idea.
I did. I never heard back from anyone. I pushed it up the chain. No result. every day routine was way more important. cost cutting, etc.
I believe that was the idea that could and perhaps (but not likely) still could save NT. A single product that would change the world of communication as we know it (for sure!) and perhaps even (i know it's a long shot) give NT another chance!
If MikeZ wants to hear that idea again I'm available, but this time it's going to cost big bucks. Not because I'm greedy, but because I learned one thing . . . when you give someone a good idea for free, it's never good enough. It can only be good if it costs an arm and a leg! That must be true because efficient market hypothesis says it is :)
I liked what you wrote here:
"For example: to “engineer” is to put together an equipment list from a pool of 50000 manufacturing codes in a way Customers can call it a “solution”. How can a company today track and maintain suppliers for 50000 different manufacturing codes?"
If I might expand on this with my view, in connection with their large installations, they are ALL customized "solutions" to the extreme where Nortel reinvents the wheel for every order. Unlike their peer who uses standardized templates. The simple modifications to customize each order make it exponentially less arduous and time consuming than starting from scratch each time. No wonder their costs are so high!
Add the number of Chiefs to Indians in the soup and I would dare to say they are run cost inefficiently here too but who can afford these upper level layoffs, then, now, let alone into the not too distant future. =)
There should also be no excuse to lacking proficiency given they outsource and their costs still remain so high for this long. One post I read here listed the problems in delay having sold their manufacturing and having to now deal with an external company.
I don't care what Nortel says, they have zero credibility in my eyes now and I disregard any word they say amid endless contradiction. Management is green and was missing in action during the telecom wars. Even though it is was this this very manufacturing process that needed to be addressed, one Mike should have mastered given his background in manufacturing or the track record he was hired for, specifically in this area.
Mike couldn't be all things to all people, like supply chains, sales, etc... As lovable a guy as Mike is, I fear they may have needed a different caliber CEO but once then the position was hard to fill from inception. He may have done a great job cutting costs in other places in all fairness but Nortel needed a superman.
I dunno, seems like Murphys Law got the better of them, they could have been a contender, but so much cascaded after the accounting irregularities that it made normal people working hard look like they were tripping over their feet. As I said, the roles were hard to fill in finding good people.
The rest I've reiterated in the most obvious usually being the most truthful and feel this time of mourning is no time to elaborate. The eulogy would be horrifying enough to surely make a hardened criminal cower =).
When Joel “The Womanizer” Hackney got on board, during his very first Vegas Sales Conference, this was the first thing he brought up in that stage. That he was going to simplify supply chain and reduce the 60K PEC codes to something around 20K in the next year or two. This was back in 2005. I have to confess that I believed him for a while. I should have noticed that something was wrong when he start pursuing the 48 hours metrics. From there, it was downhill……..
What a shame……
But they have already decided to sell MEN..
Maybe needs another one/technology/product
Anyway, MR Real, well stated..
Noone care about your ideas if they are free..
That's an excellent start. Drop the Carrier business, drop 20K staff and focus on Enterprise business where, if NT acts quickly, it might stand a small chance.
"when you give someone a good idea for free, it's never good enough."
I agree 100%. I too, have sent numerous suggestions via "channels" that would supposedly reach the higher echelons. Never heard back anything.
What a shame.........
I guess all it takes these days at NT to be a hero is to be able to keep the wallet zipped for a little while.
All I hope for is that they aren't cooking the books too much these days.
I am with you on the bogus "one time" charges. How many times is one time??? At this point i'd argue that Nortel's business model is "cut costs to reduce the bleeding". If this is a business model then those "one time charges" aren't one time at all, but rather "cost of doing business". Funny thing is, even with the funny math things are still pretty obvious, so, as one of my NT buddies used to say, why lie?
Well stated.
Nortel is in a fight for its life. Only time will tell if it makes it out. But if history is any indication, Nortel is doomed. I hat to say that, but it is very true and we all know that.
Nortel employees I bet are a bit relieved that its 1300 not 5000 or 10000 as expected. They will get comfortable only for a major upheavel later. That is reality.
Hanging onto 1 billion for operating cash is scary. I'd say bankruptcy is around the corner, coming soon to a Nortel location near you.
I wonder if you could answer the following: In the event of a bankruptcy filing followed by layoffs, would NT be obligated to follow precedent and pay severance? If not, then those on the payroll today may see a benefit indeed with being layed off today vs. some time in the future.
If not paid, laid off employees can go to court but since the company is under protection, they cannot get nothing. This is also unsecured like shareholders meaning last to get paid out if anything is left from asset liquidation if it happens.
It makes sense to take cash now. But the company cannot afford to hand out a lot of money upfront. 1300 jobs is 300 million. 5000 is 900 million. Tough situation looking at cash.
$2.3 billion
- 300 million restructuring
------------------------------------
2 billion
- 2.3 cash burn 2009
------------------------------------
- 300 million
- 1.2 billion pension adjust etc
------------------------------------
- 1.5 billion 2010
With debt coming up in 2011, zero liquidity, no positive cash flow (from profit), you can very quickly see this going to chapter 11.
The $10 billion revenue will dry up 2009 as customers move away from risk. Its bound to happen. Even optical the golden goose would be killed off until it gets sold.
Duncan ... if you are reading this, can you offer any reasonable explanation on how Nortel could burn $2.3 Billion in cash in 12 months? Seems to me to be a very far fetched assumption from an ex-Nortel employee with a grudge.
even if you go to 800 million like you said they are still out of cash.
I dont have a grudge as you incorrectly point out. Just portraying whats likely to happen.
also to add there are pension woes too if chapter 11 does happen. it could result in claims getting 15 cents per dollar.
Now what to do with that 40% Gross Margin that comes in as cash. They pay debt interest as there is no meaningful debt payment due until July, 2011. On Deferred Taxes, I'm not sure exactly how that works, nor do I fully understand the tax burden on a company reporting a loss. That was part of the Tax Credit writedown yesterday right.
Your assumptions essentially draw the conclusion that Nortel will not gain much revenue and essentially zero Gross Margin for your forecast to be true. It is pretty clear to see that would be a clearly false statement.
One reason where exnt2 might be going wrong is annualizing the Q3 numbers. From a CASH perspective they got hit with a couple of things that a (for a change) truly unusual. Plus Q3 is historically a weak quarter in terms of cash cycle, Plus NT has a fair chunk of deferred revenue flowing through the income statement. Those 'revenues' are real...but they cash for them was received some time ago. In other words, as these deferred revenues drop off the QUALITY (from a cash generating perspective) of NT's revenues will increase.
Does that help?
=======
re
In 2008 Nortel_CFO recognized around $1.3 Bill in deferred revenues. Some of them /how much?/ were placed into def. rev section during restatements of 2000-2003
In those restatements Nortel placed $3.5Bill into deferred revenues.
Question is
Where is missing $2.5 bill or more in deferred revenues?
Did deferred revenue recognition misled public_analysts about real business in 2008?
In other words
If 2008 were as good as Mike Z tried to paint it why Nortel is in BK now? Class action law suit is real.
Parliament wants to know about bonuses in 2008 and I guess in 2009.
What was the Word?
Summon
Summon
Revenue has already fallen to below 10 billion and will continue in steep decline. are you one of those who estimate 3% YoY CDMA decline when it is 30%. ooops. ouch hurts does it not.
With capital expenses now at a minimum, MEN sales delayed due to long sale process and CDMA going down faster than a rock, no major LTE deployment for a couple of years, I'd say a really optimistic forecast is 9 billion. more likely 7-8 billion. if the economy is as bad or worse than it is, this could even tank to 6-7 billion. the middle line, interest, taxes etc. still remain the same.
some of nortels largest customers are gone. morgan stanley, bear stearns, lehman. thats a lot of accounts receivable that will get written off. there are more bankruptcies coming and unless there is a way to get payment, there definitely will be a lot more bad debt.
It clearly looks like Pavi is cleaning house with two back to back quarters of heavy losses. So the writing is pretty much on the wall.
Disagree with Duncan. Usually Q3 and Q4 are strongest quarters for Nortel. Q3 really tanked big time. Q4 will be as good or worse around $2 or 2.3 billion.
http://skloverworkingwisdom.com/blog/index.php/...
In fact, given NT's market cap, a NYSE listing is probably an unnecessary expense.
http://www.cbc.ca/canada/story/2001/02/05/bridg...
Thank you for your time in reading this. I hope you can help me.
Kind regards,
Heidi-Marie Blackwell
Lauzun, France
heidi-marie@blackwellstudios.com
Nortel is losing around $500 mill in new orders each and every quarter.
The math is simple
4 quarters it is $2 bill less for the revenue in 2009!
in addition NT is recognizing deferred revenues in big chunks; in Q3 2008 it was another $200 mill plus $680 mill in H1! deferred rev does not bring new cash to the table, does it? (in Nortel case)
How much cash NT will lose in 2008? at Dec 31 2007 there was about $3.5 bill as I remember.
For Dec 31 2008 it is expected to stay at $2.3 bill, $1.2 bill gone!
1300 job cuts will save $400 mill.
What's that?
It fixes nothing!
It's not the restructuring Mike Z expected to do. It's not restructuring which should be done?
So what happened?
My understanding is that because Mike was not able to sell MEN for cash there is not enough money to do proper restructuring.
Total failure, total catch 22!
As long as Nortel is not bankrupt they have to fulfill the obligations,.
How many engineers is left there? I assume around 13000
and high level managers and well paid employees; around 6000?
Nortel is not able to do restructuring on its own to the level it is needed.
I've been repeating that assumptions for years.
Only BK would take care of it..
Today CC was a joke, smoke and mirrors. It's not what Mike Z said on Sep 17 2008.
Today Nortel has just admitted another failure, failure to plan and execute restructuring to make the corporation focused, lean and profitable.
I don't see focus!
I don't see much lean, just 300 job cuts in 2008.
I don't see Profits coming!
I see customers are running away scared. I don't see customers will be happy that Nortel is still in all the businesses with lower employment_less service. Remaining employees won't be happy to take on more duties.
Financial institutions won't be happy seeing cash melting like snow in the Spring!.
The pressure is rising!
NT trading below $1 is another issue, is it not?
I believe NT is only obligated to pay some sort of severance package in some states, like Mass.
I believe they do it to avoid lawsuits. I assume employees who receive a package have to sign some agreement not to sue in return.
When I was hired by NT as employee_engineer in 99 the agreement was "employment at will", NT had no obligation to pay severance if they laid me off.
Unfortunately they didn't so i didn't get a package and can't tell you what I would have signed to get it :)
If you are talking about senior management, then the situation is completely different. Employment contracts are negotiated on a case by case basis and you can be sure that company is on the hook to pay huge packages, pensions, etc.
they can transfer employees sold to another company. the other company has to keep the service with nortel if they layoff. or a new employment agreement that guarantees employment for some time.
a lot of these are also deferred to keep cash flow. so if the company goes bankrupt, these are unsecured and you to back to the line of all creditors.