Nortel's share value skyrockets $8.2 billion
Big win from Bell Atlantic fuels 12% rise
to near-record high
James Bagnall
The Ottawa Citizen
By stealing a huge
contract from one of its
major rivals, Nortel
Networks Corp. triggered
a stunning, 12-per-cent
rise in its share price
yesterday.
Nortel closed yesterday at
$113.50 on the TSE, up
$12.30 and only a shade
below the $114 record
reached in intraday
trading. This represented
a huge, one-day gain in
market value of $8.2
billion -- just shy of the
entire market
capitalization of
Kanata-based Newbridge Networks Corp., the country's third- biggest
standalone technology firm.
"If the U.S. market picks up Nortel's stock and runs with it, it could go
up a long, long way," said Paul Litva, an analyst with TD Securities Inc.
The source of Nortel's sudden momentum was an announcement
yesterday by Philadelphia-based Bell Atlantic Corp., a U.S. regional
phone company with more than 42 million subscribers along the eastern
seaboard, that it planned to spend $1.8 billion U.S. over the next five
years to upgrade its switching and access technology. Nortel's share of
this award will be $1 billion U.S., with 40 per cent earmarked for
switching products and 60 per cent for access technology that will allow
Bell Atlantic to offer home subscribers voice and data services at speeds
as high as eight megabits per second. Alcatel, a France-based
telecommunications equipment giant, has been awarded $800-million
U.S. worth of new business.
Nortel has emerged as a clear winner in this contest for several reasons.
First, access technology has never been seen as one of its strengths.
Now, Nortel has an endorsement from one of the largest phone
companies in the United States.
Secondly, the latest Bell Atlantic deal appears to represent a sharp
setback for Nortel's top rival, New Jersey-based Lucent Technologies
Inc. Third, Bell Atlantic has historically proved one of the toughest
regional Bells to crack for Nortel sales people. Yesterday's win appears
to end the jinx.
"Industry is going to invest heavily in high-speed access over the next
few years," said Nortel chief executive John Roth said in an interview,
"This is a huge growth market that's just opening up and an award of this
magnitude will certainly be noticed," he said.
Mr. Roth added that Nortel's latest access technology -- which is built
around a piece of software-heavy gear known as the Universal Edge
9000 -- is also a key part of a proposed new product line known as
Succession Network. This is Nortel's multi-faceted system for helping
phone companies shift gracefully from circuit (voice) technologies to
packet (data) networks.
"There's nothing in the Bell Atlantic announcement specifically about
Succession Network," Mr. Roth said. "But a lot of the components are
quite similar."
He declined to say whether Bell Atlantic had begun trials of Nortel's
Succession technology, which is expected to starting shipping in
commercial quantities by early 2000.
It's not clear what yesterday's victory by Nortel means for Newbridge,
which continues to ship its flagship switching systems to Bell Atlantic in
steady increments. Earlier this week, Newbridge also unveiled a strategy
for helping telephone companies shift their circuit traffic in a way that
permits them to send voice signals over high-speed data networks, a
competitive approach to that offered by Succession Network.
Newbridge might hold an edge in this future battle, at least in financial
terms, because most phone companies are gradually replacing their
circuit switches. Many of the latter happen to built by Nortel and Lucent,
which will naturally face a decline in related service and upgrade
revenue. These giants could easily make up for the shortfall by
convincing major customers to upgrade to their new data technology,
but the transition could prove awkward. Newbridge, which makes data
switches, doesn't face this issue.
Even so, investors declared decisively that yesterday was Nortel's day.
Newbridge closed yesterday on the TSE at $47.90, down 85 cents on
the day, while Lucent closed at $63 1 5/16 on the New York Stock
Exchange, down 16. |
