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Nortel: Still Shrinking

Light Reading
News Analysis
Light Reading
1/17/2002

Nortel Networks Corp. (NYSE/Toronto: NT) today said in its quarterly earnings release that its revenues will continue to drop for at least three more months, but the company also expects to turn a profit by the end of 2002 (see Nortel Reports on Q4).

Nortel reported that on a pro forma basis it lost $506 million, or 16 cents a share, on revenues of $3.46 billion for the fourth quarter of 2001, which was right in line with both its earlier warning and analysts' expectations (see Nortel: The Bad News is Good).

During the year-ago period, Nortel earned $929 million, or 29 cents a share, on revenues of $8.2 billion. Excluding all one-time charges, Nortel had a net loss of $1.83 billion or 57 cents a share.

The telecom giant hinted that some carrier spending relief would be necessary if it is to become profitable after at least one quarter of declining sales.

In a statement released Thursday, Nortel CEO Frank Dunn said the company expects that revenues for its first quarter of 2002 will be about $3.11 billion, or 10 percent lower than its revenues from the fourth quarter of 2001.

"For the year 2002, we expect a gradual growth in revenues beginning in the second quarter," he says. Dunn also said he expects that Nortel will return to profitability in the fourth quarter of 2002.

"I think Nortel is a little better poised to turn a profit this year than Lucent, but I'm not saying I completely believe they can do it," says Joy Mukherjee, an analyst at A.G. Edwards.

"I think [carrier] capex is unlikely to pick up until we see an improvement in the general economy. If we did see a substantial pickup in capex, it would be closer to the end of the year."

The annual results clearly reflected what a grim year it was in the telecom business. For the year 2001, Nortel reported pro forma revenues of $17.51 billion versus revenues of $27.95 billion for the previous year. It turned in a pro forma net loss of $4.51 billion, or $1.41 a share, compared to a pro forma net profit of $2.5 billion, or 80 cents a share, in 2000.

Excluding one-time charges, Nortel reported a net loss of $27.3 billion, or $8.56 a share in 2001.

Segment by segment, Nortel's businesses took quite a wallop in the face of decreased spending in the telecom market. Its metro and enterprise business revenues dropped 53 percent between the fourth quarter of 2001 and the fourth quarter of 2000. Revenues for its optical long-haul segment dropped 89 percent in the fourth quarter of 2001 compared to the year-ago quarter.

The company says it had about $3.5 billion in cash at the end of the fiscal year.

After apologizing for the company's difficulties and layoffs in 2001, Dunn expressed optimism that 2002 would be a good year, but not a cakewalk, in Thursday's conference call: "This year will not be a cinch for any company in our industry."

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com

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optigirl
optigirl
12/4/2012 | 11:03:46 PM
re: Nortel: Still Shrinking
Gotta love the comment on needing spending relief by carriers to show a profit....

Don't we all?

It would also help if the company could get spending in line with sales, stop cutting prices so low as to eliminate profit margins and maybe start producing some better products that carriers will buy. However, by keeping prices low, they are doing a good job to squeeze the smaller companies out.

Time to buy when the stock gets under $6/share.....
umustbejokin
umustbejokin
12/4/2012 | 11:03:45 PM
re: Nortel: Still Shrinking
It would also help if the company could get spending in line with sales, stop cutting prices so low as to eliminate profit margins and maybe start producing some better products that carriers will buy.

---------------------------------------

It's easy to give all this great advice but obviously in reality it takes time to accomplish all these things. Spending has been cut, and is still being cut; but R&D continues as it must. There are lots of new products & features in the pipeline, and the discounts are tough to come by.

I don't think you're going to see under $6 again babe; but I'll be loading up regardless. You might want to consider doing the same.
myhui
myhui
12/4/2012 | 11:03:43 PM
re: Nortel: Still Shrinking
But what makes you think the company will ever come back? What if the R&D isn't good enough compared to the competition?

Perhaps NT will never grow again, but will only continue to get smaller and smaller?
MKTG_Hack
MKTG_Hack
12/4/2012 | 11:03:41 PM
re: Nortel: Still Shrinking
Equinox:
The part of the cycle that angers me is that once you've been laid-off, it's like you never existed at all. When jobs open up, these companies never think to contact a laid-off employee or give them first right of refusal. I know a few people who were caught in Juniper's layoffs in June. One guy saw his job posted on their employment website about two weeks ago and he couldn't even get an interview. His job performance had always rated as exceptional so that isn't the issue - the hiring manager just wants to bring in more cronies.

So you're exactly right about NT. The good ones will leave first further weakening their position and they'll take whatever they know with them. NT will staff up with despirados and just keep slipping. CEOs never figure this out!
equinox
equinox
12/4/2012 | 11:03:41 PM
re: Nortel: Still Shrinking
What will happen to NT once this market DOES turn around? From friends I have spoken with who currently work for NT, they are totally disgusted at the way they (and their co-workers) have been treated since this layoff cycle began. Why be loyal to a company that has shown absolutely no loyalty to you? I know, I know, it's all about the numbers right? It's nothing personal.

NT use to have a reputation in the indutry as a great place to work, this reputation would actually help to attract new talent. Ergonomics, employee satisfaction, etc., is very important to show ESPECIALLY to those who are loyal to your company. It is a definite advantage from an employee's perspective, you cannot deny.

When the industry turns around and more jobs are available in the industry, I think NT will see a great deal of attrition due to emplyees that have 'weathered the storm' being fed up with the whole situation and leaving. For now they are "just happy to have a job" as are many others.

Any comments??

equinox
opticalschmoptical
opticalschmoptical
12/4/2012 | 11:03:40 PM
re: Nortel: Still Shrinking
It would also help if the company could get spending in line with sales, stop cutting prices so low as to eliminate profit margins and maybe start producing some better products that carriers will buy. However, by keeping prices low, they are doing a good job to squeeze the smaller companies out.
--------------------------------------------------
It's a buyers market right now and getting 30% margins is better than getting zero by not making the sale. Right now anything with positive margin contribution, within reason, is a good deal. One it pays the bills, and secondly that less $$ that the competition gets in this zero sum game.
CRC_Check
CRC_Check
12/4/2012 | 11:03:38 PM
re: Nortel: Still Shrinking
NT has by now hardened its R&D team to the point where it has a core of extemely competent and dedicated developers and managers remaining. It is smaller and tougher and its back is to the wall. Given all that and the focus on top performing projects, I expect the NT survivors can make a go of it. Question is can they keep that core competency during the next boom?
prefer_to_lurk
prefer_to_lurk
12/4/2012 | 11:03:37 PM
re: Nortel: Still Shrinking
"When the industry turns around and more jobs are available in the industry, I think NT will see a great deal of attrition due to emplyees that have 'weathered the storm' being fed up with the whole situation and leaving. Any comments??"

Having worked for NT for almost 10 years, I would offer the following comments:

- The greatest voluntary outflow of employees occured from mid-99 through early-01 as every CEO wannabe with a business plan scored beaucoup VC funding.
- Working for a startup is not the dream of every employee -- many people I know have had (and are still having) rewarding careers at Nortel and did not see the appeal of jumping elsewhere.
- For people who chose not to jump ship, I don't think recent history has done anything to make startups (or other established competitors) suddenly look more attractive. Layoffs abound, startups are folding, and you don't hear about too many options millionaires anymore...
- The past year has absolutely sucked. No question. But it's an industry issue -- not something localized to NT.
- When a big company lays people off, they are often villified, and portrayed as useless, incompetent, etc. When a startup collapses (as many have and a whole lot more will in the next 18 months), EVERYBODY loses their job. Yet that is somehow viewed as being the better alternative ?
- Nortel had to take such drastic layoff actions in order to stave off potential bankruptcy. Sure looks like the lesser of two evils to me, and most of my coworkers would agree.
- If you no longer view NT as "a great place to work" because of the layoffs, can you suggest another company in this industry to me that HASN'T had any layoffs -- and therefore may be "a great place to work" ?

Just to head-off a few of the more predictable flames:
- No, I don't agree with everything that Nortel management has done over the last few years.
- Yes, as a corporation, Nortel has made some mistakes.
- No, I am not in senior management and attempting to defend my cronies.
- Yes, I did have chances (many of them) to work for other companies.

ptl

rafaelg
rafaelg
12/4/2012 | 11:03:37 PM
re: Nortel: Still Shrinking
Equinox,

For one, there is no such thing as Employer GÇ£loyaltyGÇ¥ to the disciples. As an ExLU-ExNT, IGÇÖve been at both sides of a fence. I left LU for NT in 10/2000 to work on a project that was being imported from Canada to be researched/manufactured in the US. The project was cancelled in 03/2001 after numerous promises of delivery; not one piece of Equipment purchased in the states. The team was left to work on projects that were already cutting back on personnel. As one can only imagine, the atmosphere was very tense and unproductive. The horses and dogs fighting for menial jobs and bone meat. Eventually most of us were given notice in 10/2001. IGÇÖve experienced first hand, the fusionism and implosion of NT. IGÇÖve seen projects with good people cancelled where GÇ£croniesGÇ¥ were transferred to new jobs created for them. As far as position for leadership, NT has cut most viable sources/research that would place them in the previous Optical Paleozoic period --that we all were a part of-- for continuance in the future. As we have come to realize, those days of wine and roses are gone.
From friends that still remain on both sides of the fence, Lu may have kept some GÇ£sludgeGÇ¥, but they seem to have treated their people with a little more respect. Eventually, it will be recounted and remembered as times of yore. And, I agree that NT will continue to bleed once the market stabilizes again.
GÇ£...And therefore never send to
know for whom the bell tolls;
It tolls for thee...

JOHN DONNE John Donne (1571-1631


opticaltalent
opticaltalent
12/4/2012 | 11:03:37 PM
re: Nortel: Still Shrinking

Prefer to Lurk-

I stronlgy agree with everyhting you said in your last message. Critics do not want to listen to compelling evidence that are based on realities and not smoke & mirrors. Every company has been effected by the severe downturn in telecom.

Nortel grew too fast and that is way their work force reduction was as drastic as it was. They did what they had to do to stay profitable and that's why businesses are in business. And no I do not work for Nortel.
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