28 Feb. - 6 March 2001
Nortel Networks' stock crashes, investors sue
Two separate groups of Canadian investors announced Monday that they have launched class-action lawsuits against Nortel Networks, charging that the company misled shareholders over company prospects for 2001.
Meanwhile, Nortel is also facing class action cases in the US, and a third Canadian lawsuit is expected to be filed in the near future.
In less than a week Nortel Networks, commissioned by and partnered with go mobile to set up and support the Maltese telecom operator's USD24 million network, went from being the darling of the Canadian investment community to a threat in less than a week.
On 16 February, Nortel's share price plummeted by more than 30 per cent - after the company warned of a drastic reduction in earnings for the March quarter and cut 10,000 jobs, taking many analysts and shareholders by surprise.
The telecom equipment giant cited macroeconomic conditions, including slowing capital expenditures by telecoms as the basis for its warning.
But the news only got worse - Nortel announced that its CTO, Bill Hawe, resigned to reportedly "seek other opportunities."
Despite Nortel's recent problems, the company remains a dominant player in the optical networking market, and its depressed share price of late could offer an appealing opportunity as a long-term buy, at least according to some analysts.
Nortel closed last Wednesday at $19.15 a share, just off its 52-week low but a far cry from its high of $89. Over trading on the Toronto Stock Exchange yesterday, Nortel reached a high of $30.20.
However, if capital expenditures increase, Nortel will be well positioned, but if Nortel's problems are more varied, or if its clients' budgets keep shrinking, the stock could continue to fall.
Until now, the telecom equipment maker has been optimistic, but analysts are sceptical about whether the company will be able to keep up with its bullish predictions for the last three quarters of the year, as it is Nortel is implying margins of 9.8 per cent for the last three-quarters of the year.