JPM on the BLS deal:
Nortel announced yesterday that it was selected by BellSouth to provideATM packet
voice switches for deployment in BellSouth's Class 4 tandem network. Products
involved include Nortel's Succession Communications Server 2000 softswitch and
Succession Multiservice Gateway 4000 with deployment during the second half of
the year.
• In addition, Lucent announced that its EBS Communication Manager and iMerge
Gateway were selected by BellSouth for the carrier's network wide IP Centrex rollout.
We expect Lucent could recognize revenue as early as this quarter given that
market trials have completed and IP Centrex services are commercially available.
• While we believe the NT win is far more significant than LU's, we estimate value of
NT's deal to be considerably less than the company's deal with Verizon (which we
estimate at $100-150M in 2004) primarily because there is no Class 5 component.
However, by working closely with BLS, we believe NT is positioned to capture
additional circuit-to-packet and VoIP contracts from BLS.
• While clearly a positive for Lucent, we do not believe this deal represents a
significant "next-gen" packet switching win. We view the deal as comparable to
Lucent's IP Centrex deal with SBC announced May 2002 - also a multi-year deal that
used Lucent's iMerge gateway to provide IP Centrex services.
• Reiterate Neutral ratings for LU and NT. We continue to believe LU's topline
prospects are improving however, we have yet to see evidence of sustainable growth
for new products. We also continue to believe NT is positioned to capture circuit-topacket
market share, however given the uncertainty surrounding the restatements we
remain cautious toward NT's earnings growth prospects.
No change to our estimates for Nortel and Lucent. We believe Nortel's contract award is
far more significant as it demonstrates the company's continued market-leading success
in circuit-to-packet conversion following up from the company’s contract wins with
Verizon, MCI and Sprint.
Given Nortel’s deal with BellSouth is only for Class 4 replacement and does not include
Class 5 replacement or enterprise IP-PBX rollout like the company’s deal with Verizon
announced in January, we believe the value of the contract to be a fraction of the Verizon
deal which we estimated could represent $100-150M in revenue in 2004, accelerating
thereafter. The BellSouth contract, in our view, is the type of win which could help the
company achieve its guidance for greater than market growth of flat to low-single digit
growth in 2004. |
