Analyst Sees Nortel Shedding Slow-Growth Businesses
By Scott Moritz
Senior Writer
5/2/01 2:54 PM ET
Nortel (NT:NYSE - news) is preparing a major restructuring as demand for communications equipment falls, Lehman Brothers analyst Tim Luke said, citing unidentified "sources."
Luke issued a report Wednesday predicting the Toronto-based gear maker is "poised" to shuffle management and shake up its business structure. Luke's report predicts Nortel will, among other moves, spin off its underperforming digital subscriber line equipment, cable gear and phone switchboard businesses, and make Frank Plastina operating chief. Nortel was up $1.16, or 8%, to $16.60 Wednesday.
Nortel declined to comment on the speculation, but a month-old internal memo indicated that Plastina would be taking a larger role in the organization.
Nortel has cut 20% of its staff and warned repeatedly of weakening financial results in recent months, as the telecom industry suffers from a rash of bankruptcies among once free-spending emerging players. Luke says Nortel is planning the moves in an effort to turn investors' focus to its faster-growing Internet-based businesses from the old phone gear that accounts for a substantial part of its revenue. Lehman rates Nortel a buy and has done no underwriting for Nortel.
Luke says his sources expect Plastina, who is head of Nortel's phone and wireless divisions, to effectively replace Clarence Chandran, who is on medical leave. Plastina would answer to CEO John Roth and take charge over Nortel's five core operating units: wireless, core Internet, metro optical, long haul optical and voice equipment. Lehman wouldn't disclose further information on the sources of the report.
Restructurings have become common across the telecom sector as companies struggle to adjust to order cancellations and widespread cost-cutting among buyers. Lucent (LU:NYSE - news), for example, jettisoned its slow-growing office communications equipment business in spinning off Avaya (AV:NYSE - news).
Nortel is facing the same situation and may either spin off or sell some of its slower-growing units, says Luke. With demand for broadband cable and DSL equipment flagging, Nortel would likely be seeking ways to eliminate that drag on its core business, which is phone and Internet infrastructure.
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