UPDATE: Nortel Rivals May Gain As Customers Seek Stable Cos
January 14 2009 - 3:17PM
Dow Jones News
Nortel Networks Corp.'s (NT) filing for bankruptcy protection
could help competing network-equipment providers gain new
customers, but it also could hurt Nortel suppliers like Flextronics
International Ltd. (FLEX) and Polycom Inc. (PLCM).
Although it's early to say, competing network-equipment
providers, most notably Motorola Inc. (MOT) and ShoreTel Inc.
(SHOR), could benefit as some of Nortel's customers will likely
look for more stable suppliers, analysts say.
Earlier Wednesday, citing a need to put itself "on a sound
financial footing once and for all," Nortel said it is seeking
creditor protection in Canada while some of its U.S. subsidiaries
filed for Chapter 11 bankruptcy protection.
The struggling Toronto-based company said the global financial
crisis and recession have severely hit its efforts to turn itself
around, which have been going on since 2005.
Among larger telecommunications players that could gain,
Motorola's mobile-networking-equipment unit held up rather well in
2008 compared with other parts of the company, said Todd
Rosenbluth, a telecommunications analyst at Standard & Poor's
Equity Research.
With that in mind, "we contend telecom carriers will shift
spending to suppliers with relatively stable operations like
Motorola" as contracts come up for renewal in the weak economy,
Rosenbluth said.
A Motorola spokesperson declined to comment.
In the small-cap telecom arena, Wedbush Morgan said ShoreTel, a
provider of Internet telephony hardware and software, could seize
market shares if Nortel is unable to hold on to its position as the
third-largest enterprise voice-equipment maker.
Nortel's announcement is a reminder of the difficulties that lie
ahead for traditionally top-tier telecom names, said ShoreTel Chief
Executive John W. Combs, calling it "a milestone." A shift toward
newer technologies has hit telecom giants, with many now having to
spend money to keep up, Combs said, adding that his company is
strategically positioned to gain.
While both companies may stand to gain, their shares fell
Wednesday on a weak day for the overall market. Motorola slipped
3.7% to 4.16, while ShoreTel lost 6.4% to 4.10.
"There is still some near-term uncertainty," said Gartner
analyst Mark Fabbi, as investors wait to see what Nortel's fate is
and how its hopes to sell off some assets pan out.
And before some of the smaller players step up, Fabbi said,
larger dominant companies will be able to hold on to their share
first, highlighting Cisco Systems Inc.'s (CSCO) top position in the
enterprise voice-equipment market.
A Cisco spokesperson wasn't immediately available to comment.
Shares of the company edged down 3.7% to 15.83.
On the flip side, suppliers to Nortel will likely take a knock.
Shares of Flextronics shed 11% to 2.66 as the
electronics-manufacturing-services company disclosed that Nortel
was a major customer. In a release, Flextronics said it had been
working to reduce its exposure to Nortel for "several months."
Elsewhere, the news could hurt Polycom, which was a "strategic
global partner" with Nortel, Wedbush said. Still, the damage is
expected to be marginal because Polycom already has similar
partnerships with other industry leaders like Cisco and Avaya Inc.
(AV).
A Polycom spokesperson wasn't immediately available to comment.
Polycom's stock dropped 3.5% to 13.93 a share.
-By Kejal Vyas, Dow Jones Newswires; 201-938-5460,
kejal.vyas@dowjones.com
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