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Monday, July 17, 2006

Widely Traded 48 Hour Clock: The Lights Get Dim At Nortel

kgdStocks: (NT)(ALA)(MOT)(LU)(SI)(NOK)

24/7 Wall St. has begun coverage of the 36 most widely traded stocks, eighteen each from the NYSE and the NASDAQ. Most of these stocks trade over 50 million shares a week. This new feature will highlight each of the 36 stocks at least every 48 hours giving investors fresh infomation and perspective on the companies whose shares are most likely to move the broader markets.

There was some enthusiasm at Nortel when Mike Zafirovski joined at CEO last November. He had been in important jobs at GE and had been COO of Motorola.

But, the excitement didn't last long, and Nortel's shares have lost about 40% of their value since hitting $3.57 about the time the new CEO joined. The stock is now at $1.97.

Part of the problem is that competitors like Lucent and Alcatel has reported poor results and have made weak forecasts. Nortel is viewed by many has the runt of this litter of telcom equipment providers, so the assumption is that things are going badly at the company as well.

That is only part of the problem. The larger issue appears to be that, in a market where the equipment makers are merging ala Alcatel and Lucent or Siemens/Nokia, no one seems to want to get married to Nortel. The lack of interest by competitors may actually make sense.

There is some chance that Nortel will not make it at all. Revenue has been fairly flat for three years and the company had an operating loss of $2.671 billion in 2005. In Q1 06, the company had a gross profit of $908 million on revenue of $2.382 billion, which means that neither margins nor revenue are heading the right direction. The operating loss for the period was $159 million.

The company's stockholder equity is disappearing. It stood at almost $4 billion at the end of 2003 and 2004, and dropped to $786 million at the end of 2005.

Nortel's competitors, and potential purchasers, may have decided to wait Nortel out to see if the company makes it another year or two. If it doesn't, buying the assets is probably much less expensive than buying the company.

Douglas A. McIntyre can be reached at He does not own securities in companies he writes about.

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