Prudence is the name of the game

At the time of going to press, Nortel had not yet officially responded to the notice it received from the New York Stock Exchange with respect to what the Canadian vendor was going to do about its depressed share price, which has traded below US$1.00 in value for several months, against NYSE rules. While some of Nortel’s problems are quite specific to the vendor, others are more general to the telecoms equipment manufacturing sector, and Comm. reviews the level of trouble for other suppliers

Nortel CEO Zafirovski is under pressure and running out of time as his options to keep the vendor afloat appear to be narrowing rapidly

Beleaguered telecoms vendor Nortel continues to fight for its survival, having been forced to review its stock market listing on the New York Stock Exchange (NYSE), given its depressed stock price. In an email to Nortel staff seen by Comm., Ronald Alepian, the vendor’s vice president of corporate communications confirmed last month that on December 10 the vendor had received notice from the NYSE that Nortel’s stock had fallen below the continued listing standards.

“In other words, the average closing price has been under US$1.00 for 30 consecutive trading days and we need to either remedy this or face the possibility of being delisted,” Alepian explained. “This is a technical trigger, and is not associated to any other news stories…Legal and finance teams are reviewing options, which could include a stock consolidation, similar to what we did in 2006. No decisions have been made and the NYSE does give us six months to work this through – we will take our time and do what is right,” he added.

Nortel stated that it would notify the NYSE within the required ten business day period that it intends to cure the deficiency. If the average closing price does not sufficiently improve, Nortel may consider presenting a proposal to its shareholders for a consolidation of its outstanding common shares at its annual meeting planned for spring 2009.

Earlier in December, Nortel reported how in the quarter ending September 30, the company had endured its largest quarterly loss in seven years amounting to US$3.413 billion, a huge increase from a loss of US$113 million in the previous quarter and a profit of US$27 million a year ago.

Alepian attempted to end his correspondence to rattled Nortel staff on a positive note. “I’m not blind to the challenges we are facing and the obstacles to growth, but I am also conscious of people’s ability to pool their resources, set their targets on clear goals and reach them. We’ve seen it time and time again across Nortel.”

Nortel has already sought legal advice in order to better consider its options going forward. Analysts have suggested bankruptcy is a possibility taking into account the company’s losses, increasing debt load and the lack of interest in the sale of its Metro Ethernet Networks unit, which includes its optical and carrier Ethernet technology.

“Considering the worsening macro environment, Nortel’s challenged industry position, and concerns related to liquidity while the capital markets are basically closed, we think bankruptcy is a distinct possibility down the road,” RBC Capital Markets analyst Mark Sue commented.

“Asset sales couldn’t have come at a worse time, and due to Nortel’s distressed situation, potential bidders for the company’s Metro Ethernet assets may offer subsequently distressed prices,” Sue added.

At the end of September Nortel announced redundancies of 1,300 positions, equating to five per cent of its global workforce, though a Nortel spokesperson said at the time that the company had no immediate plans to file for bankruptcy, but confirmed it had sought legal advice to “chart a way forward”.

The abysmal third quarter performance at Nortel was matched only by news of the resignation of some senior staff including the departure on January 1, 2009 of chief marketing officer Lauren Flaherty, chief technology officer John Roese, global services president Dietmar Wendt and executive vice president of global sales Bill Nelson.

Innovations such as Alcatel-Lucent’s non-stop laptop security guardian are viewed as playing a central role in ensuring the vendor remains relevant in a tightening market

 Alcatel-Lucent
For full year 2009, Alcatel- Lucent expects the market for telecommunications equipment and related deployment services to be down between eight per cent and 12 per cent at constant exchange rate and expects to maintain a stable market share. As a result of the expected decline in volumes and given that the improvement in gross margin will only materialise towards the end of the year, the company’s initial forecast is to achieve an adjusted operating profit around break-even in 2009.

In 2010, with the set of actions described above, Alcatel-Lucent is targeting to achieve a gross margin in the mid-thirties range and an operating margin in the mid single-digit range. Looking beyond, the goal of the company is to achieve a gross margin in the mid to high thirties range and an operating margin in the mid to high single-digit range in 2011.

“The new management team is committed to rapidly executing this new strategy and leveraging the new streamlined organisation. We are focused on delivering results and restoring profitability. I am confident we have now the strategy and the strengths to succeed,” said Ben Verwaayen, CEO of Alcatel-Lucent.

Ericsson
For Q308 to end-September Ericsson reported that sales amounted to SEK49.2 billion (US$6.27 billion), representing an increase of 13 per cent year-on-year. Operating income for the quarter amounted to SEK5.7 billion, while net income was down 28 per cent to SEK2.8 billion, including restructuring charges.

Carl-Henric Svanberg, president and CEO of Ericsson said the business in the Q309 had not been impacted by the financial turmoil, and said he believed customers were generally financially strong. In addition, he commented that networks are loaded and traffic shows strong increase. In the present financial turmoil, however, it is hard to predict how operators will act and to what extent consumer telecoms spending will be affected, Svanberg commented.

“We have a positive longerterm view for our industry, however, as we look into 2009, we continue to plan for a flattish market, and we have measures in place also for tougher conditions,” Svanberg added.

Ericsson market development
Ericsson believes that the fundamentals for longerterm positive development for its industry are solid. The need for communications continues to grow and plays a vital role for the development of a prosperous society.

The demand for broadband is strong. Ericsson expects traffic
in mobile and fixed networks to increase tenfold in the next five years mainly driven by Internet applications and the introduction of interactive HD-TV. Data traffic in WCDMA networks measured by Ericsson is now four times the volume
of voice versus close to three times in the previous quarter. With major 3G rollouts in Brazil, Russia, China, India and Africa, consumers across the world will soon benefit from broadband services and connection to Internet.

Mobile subscriptions grew by some 178 million in the quarter to a total of 3.8 billion. 260 million are WCDMA subscriptions, up by 24 million in the third quarter. There are 239 WCDMA networks in 101 countries, of which 221 networks are upgraded to HSPA. In the twelve-month period ending June 30, 2008, fixed broadband connections grew by 21 per cent to more than 370 million.

Nokia Siemens Networks
Nokia Siemens Networks net sales of €3.5 billion (US$4.95 billion) in Q308 were down five per cent year-on-year and down 14 per cent sequentially.

Operating loss in Nokia Siemens Networks was €1 million (improved from a loss of €120 million in Q307), representing an operating margin of zero per cent (compared with -3.3 per cent in Q307).

For the nine months to end-September, operating loss at Nokia Siemens Networks was €122 million (compared with €1.308 billion loss in the nine months to end- September 2007), representing an operating margin of -1.1 per cent (compared to -14.8 per cent in the nine months to end-September).

Industry and Nokia outlook
Nokia and Nokia Siemens Networks continue to target for Nokia Siemens Networks’ market share to remain constant in 2008, compared to 2007.

Nokia and Nokia Siemens Networks continue to expect the mobile infrastructure and fixed infrastructure and related services market to be flat in euro terms in 2008, compared to 2007.

The continued cost synergy target for Nokia Siemens Networks is to achieve substantially all of the €2.0 billion of targeted annual cost synergies by the end of 2008, as previously announced.

Motorola
At the end of December, Motorola reiterated its strategic plan for 2009, stating that the continued interest in broadband technologies would see the company continue Long Term Evolution (LTE) work, as well as the expansion of WiMAX and fibre-to-the-home (FTTH) deployments in line with the projected expansion of broadband in 2009. During the course of 2008 Motorola demonstrated the industry’s first CDMA-to-LTE network handoff, as well as a number of WiMAX and FTTH deployments and products.

Despite the current economic landscape, Motorola believes the demand for media mobility points offer the company a myriad of opportunities for its products and services.

“Motorola is committed to broadband and 4G development and made significant gains in 2008, particularly with LTE to address the mobility demands being driven by consumers looking for personalised media experiences,” said Dan Moloney, president, Motorola’s Home and Networks Mobility business. “We’re looking forward to carrying this commitment into 2009 and leading the market in further development and deployment of LTE technologies.”

Motorola has decided to delay the spin-off of its handset business until 2010 at the earliest, citing the macro-economic environment, stresses in the financial markets and the changes underway in Mobile Devices

With respect to WiMAX, Motorola believes it is well-placed in both the nomadic and fixed versions of the technology. The company reported that it already has 25 contracts for commercial WiMAX systems with customers in 20 countries, and has shipped more than 5,000 multi-sector access points (powering more than 17,000 sectors) and hundreds of thousands of CPEs and PC cards as of Q308. The company’s WiMAX business for contract deployments, trials, and other customer engagements is currently engaged in 49 countries.

Motorola’s global WiMAX gains include a US$165 million contract with Saudi Arabia’s Atheeb. Wateen Telecom in Pakistan placed one of the world’s largest WiMAX device orders in 2008, with 198,000 units.

In the face of Motorola’s bullish forecasts for the year ahead, the company continues to face significant challenges in the short-term. Last month it announced additional actions to further reduce costs amid continuing global economic challenges.

As part of the overall cost reduction programme, Motorola is revising its employee compensation and benefit programmes. Effective March 1, 2009, to better align with industry norms, Motorola will permanently freeze its US pension plans, preserving vested benefits accrued by employees and retirees but eliminating future benefit accruals. Motorola intends to continue to provide funding to meet its pension obligations to present and future retirees.

Effective January 1, 2009, Motorola also will temporarily suspend all company matching contributions to the Motorola 401(k) Plan. US employees may continue to contribute to the plan but will not receive matching contributions from Motorola.

The company also announced that employees in many of the markets in which it operates will not receive a salary increase in 2009. In addition, Motorola co-chief executive officers, Greg Brown and Sanjay Jha will voluntarily take a 25 per cent decrease in base salary in 2009.

Greg Brown will voluntarily forgo any 2008 cash bonus earned under the Motorola incentive plan. Jha’s employment contract provides for a guaranteed cash bonus for 2008. His bonus will also be voluntarily reduced by an amount equal to Greg Brown’s forfeited bonus and the remainder will be taken in the form of restricted stock units.

These actions are expected to lead to cost savings in addition to the US$800 million that was previously announced on October 30, 2008.