Update: ‘We’re giving up,’ analyst writes about Nortel; another also downgrades stock

RESEARCH TRIANGLE PARK, N.C. – Nortel shares are continuing their downward spiral in pre-market trading Tuesday following selloffs on Friday and Monday after the telecommunication gear maker’s acknowledgement that business isn’t so good.

“We’re Giving Up,” wrote George Notter, an analyst at Jefferies. He cut Nortel (NYSE: NT) to “hold” from “buy.”

Notter’s downgrade helped push down NT shares 5 percent, or 33 cents, to $6.19 on Monday. As dawn broke Tuesday, shares were off another 3 percent, or 19 cents, at $6.

And on Tuesday, Vivek Arya, an analyst at Merrill Lynch, cut Nortel to “underperform” from “neutral.” His stock target price dipped to $7 from $8.50, reports Barron’s. He cited 2009 revenue estimates that he believe aren’t supported by new data. Barron’s noted Arya also recently upgraded Motorola.

The latest dives in stock price came after a 15 percent drop on Friday.

“At this point, in our view, the most redeeming thing about the stock is valuation,” Barron’s quoted Notter as writing. “Nonetheless, we’re concerned about the company’s ability to hit expectations - particularly in light of Sprint-Nextel weakness. Longer-term, CDMA [a bread-and-butter technology for Nortel] is also quite problematic. Given how profitable CDMA is, any meaningful hiccups create further downside.”

Nortel Chief Executive Officer Mike Zafirovski, in discussing the company’s earnings report last week, noted that a major client had put a freeze on capital spending orders for equipment. That company, according to several observers, is Sprint.

Notter cut his earnings estimates for NT to 30 cents from 45 cents for this year but did bump his revenue estimate $600 million to $11.1 billion. However, he sees Nortel revenues as being flat in 2009.

Nortel did announce an acquisition on Monday – its first in a long time. Nortel is purchasing Novera Optics for $26 million. The deal is being made through LG-Nortel, a joint venture between Nortel and a South Korean communications firm. The move gives Nortel additional networking technology.

But will the deal be enough to make analysts believers in Nortel again?