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

To: James Fulop who wrote (9950)	2/19/2001 9:33:22 AM
From: Kenneth E. Phillipps	Respond to of 14638

From the National Post February 19, 2001 Nortel chief Roth under siege More class-action suits: 'The market wants John Roth's head' Michael Lewis Financial Post John Roth, chief executive of Nortel Networks Corp., can expect some pointed questions when he delivers a speech to the Canadian Club this afternoon in Toronto, days after his firm issued a profit warning that shook stock markets around the world. The Brampton, Ont.-based company halved its growth forecast and reversed a US16¢ profit forecast into a US4¢ loss, triggering a controversy that has taken on the air of a political thriller. With Mr. Roth telling analysts in a conference call only last Monday that the firm would meet expectations, investors are challenging him over what he knew and when he knew it. "I think [Nortel's] credibility has gone out the window," said Ross Healy, president of Strategic Analysis Corp. "The market wants John Roth's head." Mr. Roth misrepresented the company's financial condition and prospects, it is alleged in a class-action suit launched Friday by Bernstein Liebhard & Lifshitz, LLP on behalf of investors who bought Nortel shares between Jan. 19 and Feb. 15. Stull Stull and Brody, a law firm in Los Angeles, is planning a separate class action and is seeking investors who bought Nortel stock between Nov. 1 and Feb. 15. However, Nortel says it was blindsided by a move among U.S. phone companies to defer spending on new equipment until at least the fourth quarter because of a slowing economy, excess network capacity and a cash crunch. If they were caught unaware, Nortel's senior executives hardly had their fingers on the pulse of the market, critics say. "The surprise was that three and a half weeks after Roth said [growth is] 30%, all of a sudden it's 10%. I'm not sure what happened in the interim, but obviously he must have had some orders cancelled that blew away 20% of his growth rate," said Bob Boaz, research director at Dundee Securities Corp. Miro Forest, of Forest Telecommunications Consultants, said carriers would guard news about any change in their orders. "When they pull that kind of trigger they want to be certain." While evidence of a fibre glut has been mounting for several months, Mr. Roth insists customers have only recently decided to rewrite spending plans. He also said Thursday that so-called legacy business has fallen away faster than expected, with carriers willing to run equipment at above-normal capacity instead of adding more hardware -- something "we've never seen before." As well, analysts say Nortel could have been caught off guard by multi-year delays in wireless infrastructure, since third-generation mobile commercial applications are not expected to see the light of day now until 2003-2004. This is partly because of exorbitant prices paid at auctions for 3G spectrum. More to the point, said analyst Paul Sagawa of Sanford C. Bernstein, is Nortel's behaviour in late summer, when it continued to insist that demand for parts and systems that direct communications traffic across high-speed networks would rise unabated. The company restated its positive position several times, even as analysts such as Mr. Sagawa and Nick Majendie, of Canaccord Capital Corp., flagged network overcapacity, citing an unprecedented level of spending on technology in the economic boom of the 1990s. Any quick turnaround in Nortel's fortunes would require sharply increased spending on telco equipment in Asia, Latin America and Europe, with the latter region a source of Nortel's woes given the huge debt at clients such as British Telecommunications PLC. Moreover, because long-haul networks are largely complete in North America -- the continent represents 65% of Nortel sales -- the company's focus must shift to gear used in networks linking the world's major cities, where European rivals including Marconi PLC, Architel SA and Ericsson AB have a strong presence. mlewis@nationalpost.com Other Stories by this Writer