Nortel goes into Spiral of Death

Anyone investing in Nortel over the last few years and hoping for some respite would be less than pleased as the company plunges into seemingly inescapable spiral of death. It seems that Nortel is unable, no matter who is running the ship – and there have been many – to fix the downward march in sales and stock value.

At close of play yesterday Nortel continued its ever downward march as Robert W Baird downgraded the Canadian telecom equipment manufacturer, citing soft spending dynamics from the Wireless and Wireline carriers during the second quarter.

Analyst Kenneth Muth of Baird, acknowledged that with the hiring of new CEO Mike Zafirovski, that – ‘Nortel management is very focussed on restoring financial credibility and expanding its margin profile.’

Muth downgraded the shares to Neutral from Outperform and lowered his price target to $2 from $3, adding the company’s goal of achieving $1.5 billion in operating profit in 2008 likely wouldn’t happen until 2009.

Muth downgraded shares of Nortel to ‘Neutral’ from the previous ‘Outperform’ and lowered his price target to $2 from $3. He added that the company’s goal of achieving $1.5 billion in operating by 2008 would not happen until at least 2009.

We find it incredible that Muth could have rated Nortel at ‘outperform’ in the beginning, the company has a profile of missing and then restating earnings going back to the turn of this century.

As we’ve outlined in previous articles, Nortel is in a downward spiral. As it closes down or sells off whole sectors of product lines, its turnover will decrease faster than it can grow the other lines. The opportunity to ‘cross sell’ diminishes as the number of sales people decreases and Nortel needs to exploit those opportunities fast – the whole market is currently slowing down.

With earnings statements still under review and hopelessly messed up, its not likely that Nortel is even a candidate for takeover at the moment. No doubt there are teams poised and waiting for proper accounts be published so they can jump in and cherry pick the best parts of Nortel for themselves.

We don’t think this is going to happen at the current price – watch for Nortel to drop still further at least 15% – then it presents a great ‘hold’ opportunity. 

Sources

Nortel hangs on – just The Business News Source

Nortel Makes Motley Fool List Nortel Blog