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Technology Stocks : Nortel Networks (NT) -- Ignore unavailable to you. Want to Upgrade?

To: Kenneth E. Phillipps who wrote (9871)	2/16/2001 7:30:45 PM
From: Stocker	Read Replies (1) \| Respond to of 14638

Will Vendor-Financing Woes Hobble Lucent's and Nortel's Wireless Units? By Tero Kuittinen Special to TheStreet.com 2/16/01 3:11 PM ET Nortel's (NT:NYSE - news - boards) dilemma concerning third-generation mobile networks started drawing attention late last year, but back then, the issue still seemed relatively distant. However, Nortel's profit warning and Lucent's (LU:NYSE - news - boards) abruptly worsening financial situation mean that the issue of vendor financing of 3G networks is suddenly on the front burner. The hugely expensive build-up of next generation W-CDMA systems starting to take place across Europe and Asia has led some vendors to inch out onto the thin edge of the vendor-financing ice-shelf. For the W-CDMA wanna-bes, Nortel and Lucent, possessing a weak base of orders for a 2.5G network standard called GPRS (General Packet Radio Service) which is a stepping-stone to 3G for most operators means they have to offer extra incentives to get their foot in the door. Neither Nortel nor Lucent anticipated the nearly universal adoption of GPRS by the operators of GSM- and TDMA-based systems, and, as a result, their market share in GPRS is low compared with their second-generation mobile network market share. Lucent has been struggling with less than a 5% market share in both GPRS and W-CDMA -- when calculated using the subscriber base size of received orders. Nortel has been able to battle back from a share in the low single digits in GPRS orders, to the teens in W-CDMA orders -- but at the cost of ballooning vendor-financing packages that are now putting future order growth at risk. Another complication has been the absence of a handset unit; Nortel and Lucent are the only mobile infrastructure vendors that can't offer packaged network/handset deals when they try to close third-generation orders. As a desperate last-ditch measure to establish a foothold, Lucent is suspected to have accepted a financing deal for Telefonica's (TEF:NYSE ADR - news - boards) 3G network in Germany that busts all industry records -- possibly topping 200% financing for the network. This means paying for all the hardware and ponying up an equal amount for various services related to the launch of the service. This has resulted in some eye-popping discrepancies -- Lucent's vendor-financing commitments were thought to top $8 billion at the end of last year; Nortel and Motorola (MOT:NYSE - news - boards) probably stood around $3 billion and $4 billion, respectively, as estimated by Total Telecom. In contrast, Nokia (NOK:NYSE ADR - news - boards) and Ericsson (ERICY:Nasdaq ADR - news - boards) were estimated to have $1 billion exposures. These latter two numbers are probably somewhat higher in reality -- but nowhere near the scary peaks of Mt. Lucent. The U.S.-Europe dichotomy isn't coincidental -- it reflects the trouble North American mobile vendors have had addressing the evolution of current digital networks along the path of GPRS and leading to W-CDMA. The instinctive reflex of Lucent, Nortel and Motorola has been to buy market share. But considering the size of their payoff programs, the returns have been remarkably meager: Despite outspending lavishly, Lucent has been unable to crack even 5% of the 3G market. Its biggest claim to fame is a sizable German network order that will probably remain notorious in telecom history as the absolute peak of operator pandering. As for Motorola, an early flood of news proclaiming its testing of GPRS network implementation has turned into a marked slowdown of new commercial GPRS deals. Motorola landed the early GPRS announcements on the back of its established GSM customer base, but that momentum has not been maintained. As a result of all this, the combined total GPRS market share of Nortel, Lucent and Motorola is well below the individual shares of either Nokia or Ericsson. Nortel's special problem is the extremely aggressive 3G timetables it has advertised. The company has used eye-poppingly early 3G network delivery dates to grab the "first-mover advantage" that is so sought after by North American telecom providers. But committing to unrealistic launch targets quickly turns from an advantage into a liability if contracts dictate stiff financial delay penalties. Just when does the company start paying penalties if it is forced to admit that the launch schedules will slip? Buried in Nortel's profit warning was an ominous reference to how "European wireless sales for high-speed UMTS (Universal Mobile Telecommunications System -- The European implementation of the 3G wireless phone system) equipment are expected to be delayed from the fourth quarter to the first quarter." No kidding -- was it ever reasonable to claim anything else? To understand how all this leaves Lucent and Nortel at a widening disadvantage, read Part 2. Tero Kuittinen is the vice president of wireless telecommunications at Halsey Advisory and Management, an investment firm based in New York. He is also the Wireless Technology Advisor to Wharton Equity Partners, LLC, a U.S.-based private equity firm , and the senior strategist of SpringToys, a mobile entertainment start-up company based in Helsinki. At time of publication, Halsey was long Ericsson and Nokia, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback and invites you to send it to Tero Kuittinen.

To: Kenneth E. Phillipps who wrote (9871)	2/17/2001 8:49:18 AM
From: William Hunt	Read Replies (2) \| Respond to of 14638

Kenneth ---It was a good read ----Any idea where I can find more information on optical switching since this seems to be a key for NT going forward ? Thanks ---By the way yesterday action was compounded due to the options expiration ---seem 20 was the target by the market makers ---the real key over the next couple of days is how they will unwind their positions in NT . Also notice 19 downgrades of the stock which was unusal because they normaly take several days to descreate a stock with each analysts taking their own shots BEST WISHES BILL