Here is another view. Big Money sticks it out!
Mike Tarsala's Techwatch
Big money sticks it out with Nortel
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 1:57 PM ET Feb 16, 2001
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SAN FRANCISCO (CBS.MW) -- Nortel under $20? Yikes.
Nortel's (NT: news, msgs) stock plummeted more than 30 percent
Friday, and executives, along with individual investors, got spanked. The
executives deserve the punishment: They should have had a better handle
on the business. Management should have been more careful with its sales
and earnings outlook when the company reported earnings in January.
Big money is as mad as a cheated gambler. Fund
managers said Thursday and Friday that Nortel
should have seen the slowdown.
The anger, though, seems to be pomp and
posturing: Few money managers said they were
mad enough to take their chips off the table. A
number of institutional investors are hanging in there
with Nortel, expecting the company to take its
share of the kitty as the Internet game plays on.
"Am I selling? Absolutely not," said Joe Connelly,
head of research at Cockfield, Porretti,
Cunningham. "You have to look at things long term.
The Nortels, the Sycamores (SCMR: news, msgs),
the Cienas (CIEN: news, msgs); they're laying the
information highway. When spending picks up
again, these will be the stocks that benefit most."
The bet on Nortel is simple: It's the largest maker
of fiber-optics gear worldwide. Fiber optic
networking equipment is still one of the
fastest-growing tech niches. It's one of the
cornerstones of the Internet. In spite of economic weakness, tech remains
the economy's future.
In this tough economic market, Nortel's size is a benefit. The company has
a great balance sheet. It has earnings. Therefore, it can get capital. It can
take market share against smaller rivals in a downturn. Acquisitions in the
networking arena are fairly simple: Buy up a gear maker, slap the larger
company's name on the product.
Clarence Chandran, Nortel's chief operating officer, said in a Thursday
interview that the company remains bullish long-term. It's just that
executives had little choice but to play it safe and ratchet down the
numbers.
"Customers are delaying their spending, as opposed to not spending,"
Chandran said. "They just haven't told us when they'd release their
budgets. Because of the risk to that, it was prudent for us to call the
realistic view that we saw."
Bottom line: The spending will come back.
Investors' biggest concern about Nortel is centered on weak capital
spending. Some of Nortel's telecom customers are delaying purchases, in
part because they can't get access to capital.
That isn't going to last, said Wally Kusters, chief investment officer at CI
Funds, which oversees about $16 billion in assets. Kusters says that future
Fed action could help to boost Nortel's business in the short term.
There's one caveat: Friday's producer price index gains may make it tough
for Fed Chairman Greenspan to slash rates aggressively. It's quickly
becoming more expensive for all companies to conduct business, due in
part to rising energy costs.
"This will hamper Greenspan's ability to lower rates and it pushes out the
recovery in the technology sector," Kusters said.
But either three months from now or six, Nortel will once again thrive. The
company has all the trends in its favor to make investors happy over the
long haul.
Mike Tarsala is a San Francisco-based reporter for
CBS.MarketWatch.com.
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