Nortel Networks Holdings Corp. (NT) announced at its annual shareholders’ meeting that the company will be shifting focus from WiMax to LTE technology. These wireless technologies are a key component to the newest area of growth for telecom companies, data and multimedia services. The quicker fourth generation network technologies will allow customers to have cutting-edge features such as high speed web browsing, VoIP, streaming music and HD video, as well as many other possible applications—for a price, of course. Nortel has made substantial investments in WiMax research and development, but at the present time the company believes that there is more growth potential in the LTE or Long Term Evolution cell phone network technology. Nortel considers WiMax potentially more risky as well, because it is based on a different technology platform, while LTE works on technology already in use.
The announcement was well received by the stock market as NT was up over 13% Wednesday. Admittedly, Nortel stock has suffered so much of late that perhaps any change in strategy is good news; the company has lost almost two-thirds of its market value of one year ago. Also, the work that Nortel has already put into WiMax is not lost, as it will continue to investigate the possibilities and Nortel has partnered with Alvarion Limited (
ALVR) to continue to dispense WiMax compatible devices and equipment to customers. With this move, Nortel is responding to a trend in the marketplace in which most telecom companies prefer the LTE technology and believe it will be integrated more quickly and easily--possibly within two years. The announcement comes two months after an agreement was reached for LTE licensing by some of the world’s largest telecom equipment makers.
Nortel could be a possible deep value selection for patient investors. Anyone who has followed the stock knows that it has had a horrid stretch in recent years, but NT has the capability to be a major provider of fourth generation networking solutions. From a valuation perspective, Nortel is very appealing as both price-to-sales and price-to-cash flow are well below historically normal ranges. The stock is certainly cheap, and if NT can successfully compete in the LTE arena—which looks like a safer bet than WiMax to be the next generation of mobile technology—Nortel could expect to see a little of the success that it enjoyed around the turn of the millennium.
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