CDMA, Charges Knock Nortel

Nortel Networks Ltd. has become the latest vendor to feel the CDMA pinch, as, like Alcatel-Lucent (NYSE: ALU), slower sales in North America in the second quarter had a negative impact on the vendor's top and bottom lines. (See AlcaLu's Q2 Dragged Down by CDMA.)

Nortel reported revenues of $2.6 billion, up slightly (2 percent) from a year ago, despite a slight fall in sales in its Carrier Networks division, its largest business unit by sales. Gross margin was 43.1 percent, up from 41.1 percent last year, while operating profits were $45 million, compared with an operating loss of $28 million a year earlier.

Nortel reported a net loss, however, of $113 million, or $0.23 per share, including a $67 million restructuring charge.

Nortel showed strengthening business in Asia/Pacific, where revenues were $584 million, up nearly 74 percent compared with last year. Revenues in the United States, EMEA (Europe, Middle East, and Africa), and Latin America all decreased year-on-year.

Across all its business lines, only CDMA and voice switching platforms fared worse compared with a year ago. CDMA sales dropped to $446 million from $494 million, while sales of circuit and packet voice systems fell to $144 million from $162 million last year.

Both of those business lines are part of the Carrier Networks division, which reported revenues of $1.04 billion, down 2 percent compared with the second quarter of 2007. Revenues from GSM and UMTS equipment, though, were up more than 11 percent to $448 million, thanks largely to increasing sales from the company's LG-Ericsson Co. Ltd. joint venture.

Nortel's other three divisions -- Enterprise, Services, and Metro Ethernet Networks (including optical equipment and carrier Ethernet switches) -- all reported better year-on-year sales, up 3 percent, 9 percent, and 4 percent respectively.

The vendor, though, says it's still on course to hit its full-year targets of low single-digit growth in revenues and gross margins of around 43 percent, despite the "general macro-economic weakness, continuing competitive pressures and potential of further reduced capex spending by key North American CDMA customers."

That's because it expects to see increasing sales in its Enterprise and Metro Ethernet Networks divisions during the second half of the year and is expecting to complete some wireless deals in the fourth quarter, "approximately $350 million of previously deferred revenue." (See Nortel Lands Deloitte, NT, MSFT Win in Germany, Nortel Touts Carrier Ethernet, Nortel Wins PBB Deal With Verizon, Nortel: There's More to PBT Than BT, and Virgin Trials 40-Gig.)

Nortel's share price ended Thursday at $7.64.

— Ray Le Maistre, International News Editor, Light Reading

digits 12/5/2012 | 3:35:33 PM
re: CDMA, Charges Knock Nortel So the New York exchange opened and Nortel got whacked....
After about 35 minutes of trading Nortel's share price has dropped by $0.94, 12.3%, to $6.70.

Its 52-weekk high is $22.00, and the low is $5.73.

Tough gig!
Pete Baldwin 12/5/2012 | 3:35:21 PM
re: CDMA, Charges Knock Nortel Analyst George Notter at Jeffries downgraded Nortel to Hold today and titled his report "We're Giving Up."

His main concern is CDMA, of course - any faster-than-expected declines there will hurt Nortel's profitability.
brtechy 12/5/2012 | 3:35:21 PM
re: CDMA, Charges Knock Nortel Unfortunately there is no other direction the plot can unfold for Nortel... The company has no strategy, and the actions at the top are aimed at desperately trying to inject just some financial sanity into it, while the market passes them by. 2.5G? Gone (well, CDMA is the last bag of blood on the patient, and it's not gonna last forever). 3G? Gone. 4G? Gone as well (genius - they abandoned 3G UMTS to focus exclusively on 4G and then abandoned their own product as well, brilliant). IP? Gone (do they know what IP means?). PBT? well, maybe worth of a niche company. Voice and UC? Wow, call that market share loss on mainstream. LG - well, maybe in the long run LG acquires all of the operation and Nortel becomes another Panasonic on low-end!

It is really sad, it once was a great company, technically savvy and not that shabby on the sales side as well.

All my hope to the team who is still on the trenches (not those on the board room).
digits 12/5/2012 | 3:35:14 PM
re: CDMA, Charges Knock Nortel Not everyone is downbeat about Nortel, though.

Nomura analyst Richard Windsor, while still having a pessimistic outlook for nearly all of Nortel's lines of business, believes the company is very undervalued, and rates the vendor as the best investment opportunity "among the down and outs of the sector."

Windsor believes Nortel can migrate its CDMA customer base to LTE mobile infrastructure, and the size of that business is enough for Nomura to give NT shares a price target of $10.

The stock closed Monday at $6.19.

An interesting view!
brtechy 12/5/2012 | 3:34:41 PM
re: CDMA, Charges Knock Nortel Interesting view indeed, but I go back to the point of depending almost entirely on CDMA (and a possible migration to LTE). Would Nortel get all of its base to migrate to LTE, with all of the uncertainty around the company's R&D?

On the share price, yes indeed it would be a big change to get to $10, but albeit a very risky bet. At this clip they would be barely back to the stock level of over 5 years ago, when they were in the middle of the series of financial restatements - not very encouraging...

Sign In