Once north of $300B, Nortel's stock market capitalization plummets under $1B

Nortel Downgraded by RBC Capital Markets Managing Director - Mark Sue
Mark Sue
As a casualty of Wall Street's ongoing turmoil, Nortel stock lost 10% of its value by the closing sound of today's trading bell. Additionally, RBC Capital Markets Managing Director Mark Sue downgraded his Nortel stock rating from Sector Perform to Underperform and when combined they both helped thrust Nortel's stock market capitalization under $1 billion.

In the opinion of yours truly, for a company that had once single-handedly accounted for more than a third of the total valuation of all companies listed on the Toronto Stock Exchange (TSX), this has been a "gargantuan fall from grace." To add further perspective to the scale of this decline, the Nortel stock market capitalization on March 27th, 2000 stood north of $300 billion. Nortel (NT) stock chart for the past 28 years:

View the full NT chart at Wikinvest

In his downgrade note, Sue highlighted the following challenges facing Nortel:

"Fighting in wireless and attempting to grab a substantive share of 4G (also known as Beyond 3G, an abbreviation for Fourth-Generation) may prove to be challenging for Nortel considering its subscale market position."
"Further deterioration in the CDMA market (code division multiple access - CDMA is a channel access method utilized by various radio communication technologies) may also put margin pressures on the company, according to our calculations."
"We're taking a wait-and-see approach when it comes to the enterprise and whether or not Nortel may be able wrestle meaningful market share away from Cisco. The challenge is that HP ProCurve, Juniper Networks and Brocade and others all want to lay claims to the #2 position for corporate networking."
"A deteriorating balance sheet is not helping and Nortel has been free cash flow negative thus far in 2008 (and in 7 out of the previous 10 quarters). The company has cash of $3.1B but it's also saddled with substantial debt of $4.5B. In addition, we expect Nortel to burn another $500M in 3Q08."
"Nortel has decided to sell some assets (Metro Ethernet), but the timing likely couldn't have been any worse considering the challenged status of most potential bidders."
"It is our view that credit turbulence, a potential economic slowdown overseas, and extra carrier spending scrutiny may create difficult headwinds for the company in executing its turnaround plans."

Related stories: Blogger warns: "Nortel doesn't make it out alive" Could Nortel benefit from Cisco's learning curve?

Is there a lesson for Cisco in Nortel's gargantuan fall from grace?

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