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Surprise! Nortel Earns a Profit

Light Reading
News Analysis
Light Reading
4/24/2003

Earnings season in the telecom world appears to have a theme: Steep cuts in expenses are now yielding mild upside surprises on the profit side.

This morning, Nortel Networks Corp. (NYSE/Toronto: NT) surprised the market with its first quarterly profit since 2000. This comes a day after AT&T Corp. (NYSE: T) surprised the financial markets with an upbeat quarter, and Lucent Technologies Inc. (NYSE: LU) reported a smaller loss than was expected (see Nortel Shows Q1 Profit, AT&T Results Are Upbeat, and Lucent Grows Slightly, Loses Less).

Nortel reported net earnings of US$54 million, or a penny per share, on revenues of $2.40 billion. Those revenues were down 5 percent from the fourth quarter of 2002. But most importantly, Nortel actually increased its cash position by $100 million to $4 billion.

Looking forward, however, Nortel executives remained cautious. On the quarterly conference call they warned of continued weak capital spending levels. The company did not give specific financial guidance but stated that "The company continues to expect the overall telecommunications equipment market to be down modestly in 2003 compared to 2002."

Meanwhile, Nortel's revenues shrank across all segments. Compared to the first quarter of 2002, Wireless Networks segment revenues decreased 16 percent; Enterprise Networks revenues decreased 9 percent; Wireline Networks revenues decreased 18 percent; and Optical Networks segment revenues decreased 33 percent.

The reception on Wall Street was upbeat. Shortly after opening trading, Nortel shares rose 0.09 (3.52%) to 2.65, while the general market was down.

— R. Scott Raynovich, US Editor, Light Reading

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rafaelg
rafaelg
12/5/2012 | 12:10:42 AM
re: Surprise! Nortel Earns a Profit
This may be related to the Effect of War on Telecom but that thread is about idiot-logies.
I wonder what the consequences will be to American (USA) Telecomm companies given the general dislike of the current US foreign policy by other countries. Will they buy more from non-USA telecomms?
Xiang_Qi
Xiang_Qi
12/5/2012 | 12:10:36 AM
re: Surprise! Nortel Earns a Profit
yes, but optical revenues dropped 22% Q/Q and 33% Y/Y. /XQ
silenceofthelambdas
silenceofthelambdas
12/5/2012 | 12:10:33 AM
re: Surprise! Nortel Earns a Profit
Profit is better than loss, but looking at the details gives reason for caution:

- $190M net earnings from Discontinued Operations (sales of Arris being the major component)

- Revenues down: Wireless -6%, Enterprise -6%, Optical -22%, Wireline +11%, Overall -5%

- Some of the big savings are in areas that won't tolerate much deeper cuts: R&D -18% vs. last year (2003Q1 $489M), SG&A -35% vs. last year (2003Q1 $487M).

On the good news side, the Gross margins on what NORTEL is selling have risen to 42.9% in 2003Q1 (39.3% 2002Q4). Better margins on fewer sales.

Overall, it looks like non-recurring savings on the expense side are paying for the restructuring (layoff & selloff) costs, and revenues are down a bit across the board. Not my idea of a strong recovery, but I'll take it.

Let's hope the company truly is turning the corner (a "left-angle turn?") and the stock goes up, for the sake of those hoping to recover some of the massive financial losses incurred during the tenure of Mr. Roth & gang.

-SOL
dljvjbsl
dljvjbsl
12/5/2012 | 12:10:33 AM
re: Surprise! Nortel Earns a Profit
The bulk of the profit came from discontinued operations.
dljvjbsl
dljvjbsl
12/5/2012 | 12:10:32 AM
re: Surprise! Nortel Earns a Profit
DonG«÷t cheer for Nortel just yet ---

Link to a column in the Toronto Globe abd Mail newspaper that looks behind the numbers in Nortel's annual report.

http://www.globeandmail.com/se...


DonG«÷t cheer for Nortel just yet
Bill Johnson
Bill Johnson
12/5/2012 | 12:10:31 AM
re: Surprise! Nortel Earns a Profit
rafaelg wrote:
"I wonder what the consequences will be to American (USA) Telecomm companies given the general dislike of the current US foreign policy by other countries. Will they buy more from non-USA telecomms?"
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Unlike your biased opinion, there are quite a few countries that have an actual 'like' for current US policy. Whether the like or dislike, countries, companie, and people, will continue to buy the best product for the best price. Pretty simple actually. You should venture outside of your cubicle more often.


Inaxs
Inaxs
12/5/2012 | 12:10:26 AM
re: Surprise! Nortel Earns a Profit
Thanks for that link, that was a good, insightful article. There does seem to be two major bottom lines for companies like Nortel and Lucent. Getting costs cut to match up with the decline in revenues is the one bottom line, and Nortel seems to have mostly achieved that. The other one seems to be the debt issue. Both Nortel and Lucent have increased the number of outstanding common shares from around 3.2B to around 3.9B and only within the last 6 months or so, I believe.

The issuance of these common shares is related to their debt obligations. Does anyone know how you get a heads-up on when this is going to occur. Is there some sort of SEC filing or what?

Inaxs
rs50terra
rs50terra
12/5/2012 | 12:10:21 AM
re: Surprise! Nortel Earns a Profit
And I wonder if you live in
Berkeley or are just stupid.
dljvjbsl
dljvjbsl
12/5/2012 | 12:10:20 AM
re: Surprise! Nortel Earns a Profit

Getting costs cut to match up with the decline in revenues is the one bottom line, and Nortel seems to have mostly achieved that. The other one seems to be the debt issue


Another major issue for Nortel seems to be an irrational tie to technologies that have failed in the marketplace.

According the the annual report Nortel is still making investments in 3G technology. 3G is a technology that has been as roundly rejected by the market as any technology could be and yet Nortel management stubbornly continues to invest in it. They even claim that it will contribute to the bottom line. There are alternative technologies that exist today which can do what 3G can only try to do and do it cheaper and better.

It seems that Nortel is tied to an outdated carrier-centric view of the netork that blinds them to the alterntives to 3G which are working today. Shareholers and employees are going to be the ones to lose when Nortel finally has to admit that 3G is only an empty shell.

2bits
2bits
12/5/2012 | 12:10:12 AM
re: Surprise! Nortel Earns a Profit
Nortel is doing fine with this release. Analysts are busy upgrading the stock today:
http://biz.yahoo.com/c/2003042...
and they're increasing their price targets into the $3 range. Nortel is one of the only N.American comms vendors with a "buy" rating on it recently.

People are sniping that Nortel has sinister deeper problems than the results indicate but really; turning a multi-billion dollar loss into even a modest profit in 18 months during a horrible down market is some vindication of the steps Nortel have been taking.
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