Nortel Networks Corp.'s stock continued to surge Thursday, once again fueled by news of a contract win of unknown value.
The latest gains followed news of a three-year deal with Massachusetts firm Avici Systems Inc.
Under the terms of the deal, Nortel will sell and support Avici's Internet Protocol routers for directing the data being transmitted over telecom networks.
Sue Spradley, Nortel's president of wireline networks, said the strategic advantage in teaming with Avici is that Nortel was lacking a reliable core router to complete its line of network equipment products. She said Avici has the technology Nortel was looking for and the customers to prove it.
The deal comes after Nortel announced a coup over rival Lucent Technologies on Wednesday, winning a major contract with Verizon Communications, the largest local phone company in the U.S.
Like the Verizon contract, a specific dollar value was not provided for the deal with Avici. But that didn't stop enthusiastic investors from throwing caution to the winds and giving Nortel Networks another strong day on the markets.
In Thursday's morning session, it ranged as high as $8.07 on the Toronto Stock Exchange, its highest point since March 2002. The stock closed the day up 7.7 per cent, or 56 cents, to a new 52-week high of $7.86.
Nortel's all-time high is $124.50, reached in July 2000. Its lowest point since then was 67 cents, reached in October 2002.
Thursday's gains followed a phenomenal spike of 19 per cent on Wednesday, to a new 52-week high of $7.30 on the TSX.
Wednesday's gain alone added about $5 billion to Nortel's market cap, leading some analysts to speculate that investors may be setting themselves up for another disappointment. The Verizon deal is acknowledged to be a major milestone on Nortel's road to recovery, but the question remains whether it is enough to justify such heady gains. BMO Nesbitt Burns, for example, estimated on Wednesday that the five-year Verizon deal will likely yield about $200 million in revenues for Nortel in its first year, a mere two per cent of the Brampton-based firm's expected total.
Nortel will supply Verizon with the equipment it needs to upgrade its services to deliver voice and data over Internet-based networks.
So called Voice over Internet Protocol Technology breaks voice traffic into "packets" of data that can transmit quickly across a network to be reassembled at the other end. The technology can transmit voice and data together, allowing service providers to operate their networks at a lower cost.
Thursday's deal with Avici also gives Nortel an option to buy a stake in the Boston-area firm.
Avici granted Nortel a warrant to buy 800,000 shares of its common stock, for an exercise price of about US$8 a share or $6.4 million in total.
Avici has about 12.18 million shares outstanding, meaning Nortel would gain a stake in the firm of about 6.5 per cent. Avici closed Wednesday on the Nasdaq at US$10.44. The deal with Nortel drove Avici's stock up 29 per cent in Thursday's session, or US$3.07, to US$13.51. Avici is a relatively small player in the telecom equipment sector, with revenues in the fiscal 2002 of under US$30 million.
