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Optical/IP

Nortel Outlook Degrades

Highlighting the over-capacity built into in the long-haul optical space, the outlook for Nortel Networks Corp. (NYSE/Toronto: NT) worsened today. A confluence of negative factors continues to dampen the company’s outlook.

Nortel shares sank 0.48 (3.83%) to 12.05.

The action follows on several negative trends. First, demand for long-haul capacity remains weak and shows no signs of reversing anytime soon. Much of the fiber that has been lit remains under-utilized, and reducing this excess capacity remains a top priority. The need to increase utilization rates was perhaps the most notable theme from last week’s Supercomm 2001 conference; and Juniper Networks Inc.’s (Nasdaq: JNPR) earnings warning last week confirms the weakness in the long-haul space.

Adding further fuel to the fire is intense pressure from Ciena Corp.'s (Nasdaq: CIEN) CoreDirector bandwidth management platform, which continues to gain traction at Nortel’s expense. Combine the long-haul problems with intense competitive pressure in the metro space, and you have the potential for a second-quarter earnings warning in coming weeks.

Beyond the long-haul troubles noted above, Nortel is also experiencing weakness in 3G wireless. The company's recent decision to exit the DSL business confirms the weakness in this business. Pertaining to optical, these developments reflect a pervasive trend in which the Big 3 (Lucent Technologies Inc. (NYSE: LU), Cisco Systems Inc. (Nasdaq: CSCO), and Nortel) have lost ground to a host of next-gen startups with focused business models and an optical/IP emphasis.

All of these factors have led some analysts to downgrade their outlook for Nortel. In addition, several sources close to the company have told Light Reading that they expect the company to miss expectations for the quarter and possibly warn of a revenue and profit shortfall.

To account for an increasingly volatile industry environment UBS Warburg analysts Nikos Theodosopoulos and Michael Urlocker lowered their 2001 and 2002 earnings estimates for Nortel on Monday. "Our model was too optimistic," says Urlocker. "Nortel will experience a decrease in sales compared to Q1. We spent two days interviewing carriers at Supercomm, and not a single one of them had a single positive thing to say about spending on next-generation gear from Nortel.”

A lack of key product releases (most notably the Optera HDX optical bandwidth manager) until the first quarter of next year also limits the near-term upside for Nortel. The UBS Warburg analysts lowered their EPS estimates for 2001 to a 17-cent loss from a 10-cent profit, and cut their 2002 forecast to 25 cents from 40 cents. Due to the potential for additional layoffs, the analysts also lowered their price target to $15 from $18.

— Mary Jander, Senior Editor, and Christopher P. Bulkey, special to Light Reading http://www.lightreading.com
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ExNortel 12/4/2012 | 8:16:01 PM
re: Nortel Outlook Degrades Unfortunately, my crystal ball is not only telling me Nortel will miss their numbers this quarter, they are going to be WAY off their numbers.

Anyone care to wager on this one? I haven't been wrong yet! ;-)

Ex.
kbkirchn 12/4/2012 | 8:15:57 PM
re: Nortel Outlook Degrades Did your Crystal Ball tell you to sell all your tech stock and exercise/sell all your options in March 2000 too?
exnortel2 12/4/2012 | 8:15:54 PM
re: Nortel Outlook Degrades
>>>Beyond the long-haul troubles noted above, Nortel is also experiencing weakness in 3G wireless. The company's recent decision to exit the DSL business confirms the weakness in this business.

What is the link between the DSL business and 3G wireless ? Are the editors from another telecomm world ?




Metadata123 12/4/2012 | 8:15:54 PM
re: Nortel Outlook Degrades Nortel is fluttering in the wind with no direction and no strategy. Roth will have to fire his Strategy team and get some experienced competents to fix this problem. He had appointed a long time insider to this critical job a while ago. This is symptomatic of the nepotistic bureaucracy that Roth has created.

The first sign that Roth could provide that he is serious about change is to fire the head of the Strategy and Marketing team and his cohorts. They have squandered shareholder value to unprecedented levels and should be penalized accordingly.

Keeping the existing team in place will ensure a far more terrible future for NT than what Lucent is experiencing. Judging by what NT insiders tell me, the future looks very bleak. Roth has to clean shop right away or risk a future far worse that Mr. McGinn. And those of us investors will be left holding the bag.
gladysnight 12/4/2012 | 8:15:53 PM
re: Nortel Outlook Degrades "What is the link between the DSL business and 3G wireless ? Are the editors from another telecomm world ?"
=======================

The lines on the powerpoint presentations all look the same to journalists.


LightCycle 12/4/2012 | 8:15:52 PM
re: Nortel Outlook Degrades > >>>Beyond the long-haul troubles noted above,
> Nortel is also experiencing weakness in 3G
> wireless. The company's recent decision to exit
> the DSL business confirms the weakness in this
> business.

> What is the link between the DSL business and 3G
> wireless ? Are the editors from another telecomm
> world ?

Actually, what the Editors are missing is that the primary driver for the exit from the DSL business was poor margins, not necessarily a lack of demand - it was a prudent move on NT's part.

As for NT's 3G weakness, thats another story, I think a combination of internal and external problems, ie. product delays, failure/inability to play-on/leverage NT's strengths (3G Packet core) when battling against the likes of NOK and ERICY, collapsing capital market, etc.
kephill 12/4/2012 | 8:15:50 PM
re: Nortel Outlook Degrades lightreading says they could discover no new sales but today NT annonces sales to Mobistar. I don't trust lightreading. Their presentation seems very one sided. I think they lack jounrnalistic integrity.
rafaelg 12/4/2012 | 8:15:49 PM
re: Nortel Outlook Degrades OHHHH NOOOO....!!!!!!

Lightreading may be biased?
NO journalistic INTEGRITY?
(sarcasm)
The posts(screened) provide more accurate info.

Just place an add...
kephill 12/4/2012 | 8:15:47 PM
re: Nortel Outlook Degrades There can't be a warning because there was no projection. When LR asks this rhetorical question, they show their ignorance.
Scott Raynovich 12/4/2012 | 8:15:46 PM
re: Nortel Outlook Degrades Good point.

Question: So, in the absence of guidance, a good quarter for Nortel is anything better than Zero?
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