Nortel Networks (NT)….opportunity or going to 0$?

By: ispeculatornew
Date posted: 11.17.2008 (4:00 am) | Write a Comment  (6 Comments)

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Nortel Networks is one of those companies that has so many stories associated with it. Based in Canada, it profited greatly from the technology boom in the early 2000’s and among other things, was part of the huge infrastructure boom of fiber optics. And while many of the similar companies went under, a few survived but they seem to be stuck in a restructuring mode and seem to always be in catch-up mode. Now, one of the tough parts to value (as is the case for the auto industry in the US) is how a possible government intervention could be structured and what it would mean for the common stock value. At its height, Nortel (NT) was worth an amazing 10% of the TSX60 index and has a symbolic value that could help the Canadian government help it out.

Last week, Nortel released its latest earnings and it wasn’t very nice. In fact, it was so bad that the stock continued to tumble and got a price target of 0$ by RBC analyst Mark Sue. Sure the company still has a lot of cash, but it is going through it at a worrying rate and RBC anticipated it could be down to some trouble by the end of next year. With a company down 95% from its high, revenues declining and employees being laid off, it’s certainly not looking very bright in Nortel’s future. “Without government intervention or major financial sponsors, Nortel may run of out cash before its $1-billion, 2011 bonds mature,” Mr. Sue said. “Our price target of $0 represents our belief that bankruptcy is a distinct possibility and common shareholders are last in line.”

If you compare the numbers ending September 30th 2008 to the numbers for the 3rd quarter of 2008, you will see lower revenues, a lower gross margin, as well as an important loss of $3,5B

And with the current economic problems, it’s difficult to think that there will be a big turnaround for Nortel. But still, a major part of the value of Nortel is because of the expected bankruptcy, but in the case where it could escape that ending, it could be worth a lot more. “It’s either worth $0 or it’s worth a lot more, and I think it’s worth more,” he said. “They have invested $20-billion in research in the last 10 years. I know people have been disappointed for the better part of 10 years, but there’s better value here than the stock is implying.”

Still, in my opinion, it’s better to stay away from NT for the time being, it’s just too difficult to trade on hopes of government interventions as they can be done in ways that can make the stock worthless, or in ways that could improve the value of equity, you just never know.

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  1. Comment by Nurseb911 — November 17, 2008 @ 7:17 am

    They cut their preferred dividends which IMO has always been capital suicide for any company. They don’t have a chance now to raise equity in the markets and cost cutting won’t help them restructure because their fundamental business model is broken. In all honesty this company should have gone to zero a long time ago but simply dragged things out for what seems like forever.

  2. Comment by IS — November 17, 2008 @ 8:10 am

    Yep, don’t they remind you of Lucent-Alcatel in a way? Companies that were huge bnut are now barely surviving and probably should go under?

  3. Comment by The Financial Blogger — November 17, 2008 @ 8:10 am

    I think that both NT and GM will go down at $0 for Xmas… that’s too bad for these 2 giants who used to ruled their market!

  4. Pingback by Four Pillars Investing — November 24, 2008 @ 4:03 am

    […] The Intelligent Speculator thinks Nortel is going to $0. […]

  5. Comment by magus — January 20, 2009 @ 3:58 pm

    take note, Scotia McLeod made Nortel their number 1 choice to invest in as little as one year ago. I am one who got burned.

  6. Comment by admin — January 20, 2009 @ 4:06 pm

    wow..sorry to hear that, how much did you buy?

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