Mark Evans

Is Alcatel-Lucent Just the Beginning?

So, Alcatel and Lucent are thinking about doing a $34-billion merger? While they will only admit to be “discussions”, a deal could have huge ramifications on the telecom equipment landscape. Nortel, for example, would find itself with a formidable competitor in “Alcacent” and the speculation about Nortel doing a dealing itself - possibly with Siemens - could intensify. The Alcatel-Lucent deal, which has been rumoured before, is the kind of transaction the telecom equipment industy has expecting for the past several years because it is widely believed the market has to consolidate. So far, however, everyone has been afraid to make the big leap. That said, there have a series of joint ventures (Nortel-Huawei, for example) established, which suggests there's a lot of dating happening but everyone is still commitment-phobic and refuses to get married.
Update: The Networking Stock Blog has a nice round-up of buzz within the blogospher of the Alcatel-Lucent talks, while Om Malik provides an in-depth analysis of why the deal makes sense, and Mark Goldberg looks at how the consolidation within the telecom equipment would impact R&D activity in Canada.

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Got Nortel Fever? Breath, Relax, Breath

Nortel's back! Yup, everything's being cleaned up and it's nothing but clear sailing and blue skies ahead under the steady hand of CEO Mike Zafirovski. So climb back on the bandwagon, there's plenty of room.
Hold on! Not so fast! We've been fooled before by Nortel's promises of better times. Maybe - just maybe - we should be a little pragmatic. As a start, it wouldn't hurt to read my column in today's Financial Post.
Update: It seems karmic that Redback Networks - a potential takeover candidate for Nortel - has also delayed filing its 10-K. Maybe these companies are meant to be with each other.

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Nortel Accounting Woes Continue

Is anyone surprised by the fact Nortel is doing yet another review of its financial statements? This time, it's focused on contracts signed last year. And although the company insists it isn't material, the perception that Nortel is still trying to resolve its accounting scandal is troubling. At some point, Nortel needs to have a clean slate so it can move forward strategically. While investors have to give Nortel and CEO Mike Zafirovski the benefit of the doubt, it is difficult to instill confidence if the past continues to haunt you. It is also important to keep in mind that even if Nortel manages to deal with its accounting demons, the future is challenging. This is a company that needs reduce costs and focus on markets where it can succeed - a challenge in a volatile and competitive industry in which the economics are dramatically changing. This year looks to be one dominated by rebuilding a solid corporate foundation. Only when this process is completed can the company really focus on driving growth again.

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What's Nortel Up to?

Nortel is holding a teleconference tomorrow (Friday) at 8 a.m. with CEO Mike Zafirovski, CFO Peter Currie and v.p. of investor relations Terry Glofcheskie. The Webcast can be found here. Maybe it's the overview of the company's $1.9-billion R&D plans that Mike Z. talked about a couple weeks ago at a RBC conference in Whistler. Maybe it's an acquisition.
Update: Nortel is posting its Q4 and 2005 results today. You wonder why the company was so coy in its advisory, and why it only provided 12 hours notice of their release.
Update II: Nortel also provided details about yet another financial restatement - this one focused on an extensive review of many contracts last year to comply with more conservative accounting practices. 

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Nortel Considers Share Reversal

Nortel, which has a kazillion shares outstanding (actually close to 4.9 billion if a class-action lawsuit settlement plan goes through) is thinking about a reverse stock split to revive its stock price, which is struggling below $4. Shareholders may get to vote on the proposal at the company's AGM in May. Nortel also disclosed compensation packages for its senior executives, including CEO Mike Z.

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What a Weird Week: $21M, $250M, $2.5B

The good thing about writing about technology is there's never a lack of news. This week, however, there was a strange news flow vibe . It started with FON raising $21-million to build a global Wi-Fi  network, only to see it be hammered for its recruitment of A-list bloggers as "advisors" and the false claim it had a deal with a Seattle-based ISP. Talk about dropping the PR ball. Then, Vonage filed for an IPO to raise as much as $250-million. No doubt the IPO will happen because it would be the ultimate embarrassment for founder and chairman Jeff Citron and the company's investors if it didn't happen. It's just a matter of price, but all I would say is caveat emptor. Finally, Nortel plans to cough up $2.5-billion to make most of its class-action lawsuits disappear. So what's the link between these events? The common thread is unrealistic expectations and irrational investor behavior. FON's financing, which involves Google, Niklas "Show me the money, eBay" Zennstrom and Cisco senior VP Mike Volpi, is outlandish given its strategic plan is ambitious and totally dependent on Wi-Fi users agreeing to open up their networks. From its inception, Vonage has always been more of an investment play - fueled by Citron's knack for exploiting disruptive technology opportunities - than a business, even though it has 1.2 million subscribers. Vonage is bleeding because it spends like a drunken sailor on marketing to attract customers so, in part, it can build enough critical mass to be acquired or do an IPO. The problem is that turning off the marketing machine could be a disaster given the growing competition. Finally, Nortel did what it thought it had to do to move forward in the wake of its accounting scandal. While the class-action lawsuit plaintiffs will walk away happy, Nortel will surrender 18% of its much-needed cash reserves while diluting its stock by 14%. Nortel's troubles go back to the craziness of the telecom boom in the late-1990s when the sky was the limit and investors dived in with the open support of Nortel CEO John Roth, who boldly talked about more than 30% sales growth a  month before the bottom suddenly fell out of the market in March, 2001. Everyone involved was greedy and/or irrational about the telecom market's prospects. At the end of the day, Roth walked out of the shit smelling like a rose with $135-million nest-egg.
So what does it all mean? For the past few months, I've had an uneasy feeling about the whole Web 2.0 investment phenomena because it has reminded me of the goofy giddiness of the dot-com boom. FON and Vonage highlight the current investment environment while Nortel should provide everyone with a much-needed reminder of what happens when the markets get out of hand. It's important to see the technology/investment landscape as a whole rather than isolated incidents because it offers perspective - something that doesn't seem to be too prevalent these days.

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Blogs & Corporate Reps

I didn't plan on posting tonight until I came across this great cartoon from The Economist (hat tip to Steve Rubel) about how corporations should have PR plans to handle chatter about them - good and bad - in the blogosphere. The only company I know that closely monitors my blog is Nortel but the company hasn't been as fun to write about with the end of the accounting scandal and the “retirement” of CEO Bill Owens.

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Nortel Unveils $2.4B Lawsuit Settlement Plan

Nortel CEO Mike Zafirovski's work to clean the decks has moved to the legal world on news the company has reached a settlement in principle to settle two major lawsuits filed in the Southern District Court of New York. The deal will be part of a global settlement involving all the class-action lawsuits launched against Nortel in the wake of an accounting scandal in which a dozen senior executives, including ex-CEO Frank Dunn, allegedly cooked the books to trigger a lucrative bonus plan. So what's it going to cost to make these lawsuits go away? A cool $2.4 billion. This will consist of $575 million in cash and the issuance of 628.6 million common shares, which represents 14.5% of current equity. Nortel will also contribute one-half of any recovery in the existing litigation by Nortel against Dunn, ex-CFO Douglas Beatty and ex-controller Michael Gollogly, who were terminated for cause in April, 2004.

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Nortel Brand-Building Again

After sitting on the sidelines for a couple years, Nortel is back in the branding business with print and television ads that will feature the slogan “Business Made Simple”. It's an improvement over the last, quickly-forgettable campaign, which used “This Is The Way”. I wonder if this is the work of Clent Richardson, who will be leaving his position as Nortel's chief marketing officer next month? Maybe Nortel CEO Mike Z. is pushing the exercise as a way to refresh Nortel's brand and mark the start of his reign? Personally, I would have gone with “JVs are Us” in light of Nortel's deals with Huawei and LG. Or maybe the catchier “It's Mike Zee, Not Mike Zed, eh” to reflect one of the differences between  Canadians and Americans. Or maybe the simpler “The New Nortel: Slim, Trim and Scandal-free”.

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Analysts Loving Nortel's Mike Z.

I've got an investment story in today's National Post about how a growing number of analysts are jumping on the Nortel bandwagon. A big chunk of the enthusiasm has to do with the expectations newly-minted CEO Mike Zafirovski and his plan to revive the embattled company by giving it a sharper strategic vision - as opposed to its all-things-to-all-people approach that spread its focus (and R&D dollars) too thin. While Zafirovski is a breath of fresh air after John Roth, Frank Dunn and Bill Owens but investors should be cautious before they start to believe Nortel's back on the right track. This is a company with a multitude of internal challenges that will time to fix, while it faces external issues such as rising competition from low-cost rivals such as Huawei and low margins in high-growth markets such as India and China. It would probably make sense to wait until Nortel issues its fourth-quarter results in a couple weeks before getting too excited about Nortel's prospects, particularly given it should be the first time Mike Z. will talk publicly since he started the new gig in mid-November.

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