Nortel: Inventory Garage Sale?
The rumor that Nortel had succeeded in reducing its inventory levels by as much as half -- originally reported by Briefing.com -- circulated widely on Wall Street this morning. But such news, though initially seen as a sign that some of the glut of components and systems was finally being worked out of the optical networking industry, might not necessarily have positive ramifications.
"We've been trying to chase down rumors that Nortel's been pushing inventory back onto its suppliers," said one Wall Street investment analyst, who asked that his name and affiliation be withheld. "Then we heard from some service providers that Nortel was offering super-aggressive pricing for its 160-channel DWDM systems."
Either instance would not reflect well on Nortel, which has acknowledged in recent SEC filings that inventory levels for optical components have gone up. In its 10-Q for the last quarter of 2000, for instance, Nortel stated that an "increase in inventory was primarily due to measures taken to address the increased demand for optical networking and mobility systems."
Reductions in inventory for this quarter could be a sign that market demand for high-end optical systems is at last materializing as expected. But the good news could sour if it turns out Nortel's been sending stockpiled chips back to suppliers, or discounting slow-moving DWDM systems so drastically that carriers have little choice but to take the goods (and the components they're based on) off Nortel's hands.
Yet that seems to be one of the theories making the rounds on Wall Street. Nortel refuses to comment. "We don't comment on rumors and speculation. We're announcing earnings on Thursday [April 19, 5:00pm EST], and information on our inventory levels will be released for everyone at that time," says a spokesperson.
A key Nortel supplier of DWDM components, Oplink Communications Inc. (Nasdaq: OPLK), also is announcing its third-quarter 2001 earnings at market close on April 19. Another supplier, JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU), will release its third-quarter earnings at 4:05 EST on April 26.
Both suppliers say they won't comment on the rumors, particularly given the mandatory "quiet period" prior to earnings releases.
Still, analysts have their eye on them. "We'll check suppliers' inventory levels after they report," says the analyst quoted earlier. "If those inventories have gone up... well, we'll have our theory about that."
- Mary Jander, Senior Editor, Light Reading http://www.lightreading.com