A massive sell-off of Nortel Networks stock was so heavy by Wednesday afternoon that the Toronto Stock Exchange shut down trading of the telecommunications giant.

Plunging Nortel shares are dragging the TSE's main index down with them.




Nortel's third-quarter results released Tuesday didn't impress investors, causing its shares to drop 26 per cent Wednesday morning.

Nortel makes fibre optics equipment that allows people to get on the Internet and access information quickly.

The high-tech heavyweight makes up nearly one-third of the value of the TSE 300 Composite Index. So when Nortel drops, the TSE follows.

Fibre optics
Fibre optics

The sell-off hammered the TSE 300 index, whichhad lost more than 900 points at one point on Wednesday.

Nortel shares were moving at about $71 US Wednesday morning. Shares had traded close to $120 US at the beginning of September. Nortel was still trading on the New York Stock Exchange even though it had been halted on the TSE.

Many RRSPs and mutual funds, which have large stakes in Nortel, will be severely affected, as will other tech stocks, such as JDS Uniphase, Nortel's largest customer.

Nortel is actually making money – it's just not making enough.

Nortel's quarterly results beat analysts' estimates. It reported an operating profit of $574 million US for July, August and September, a 60 per cent increase from the same quarter last year. And overall revenues soared by 42 per cent to $7.3 billion US.

"The problem here is not necessarily with Nortel," said Dave Powers, an analyst with Edward Jones in St. Louis, Mo. "The problem was with investor expectations. The stock was priced for perfection and now the news is less than perfect."

The company reported weaker-than-expected sales figures. It said fibre optics sales grew 90 per cent over the quarter. Analysts were expecting 120 to 125 per cent growth.

Nortel says the reality is the telecommunications field is so saturated with new equipment, it just can't grow any faster.

"The challenge right now is that the marketplace can only absorb at a certain rate," Nortel CEO John Roth said from the company's headquarters in Brampton, Ont.

"Building these fibre optic networks is a huge undertaking and we're now caught up with the rate at which the marketplace can absorb this technology."

He calls Wednesday's brisk trading action a "buying opportunity."

Some analysts agree. Tom Caldwell, chairman of Caldwell Securities calls it "a 50-per-cent-off sale."