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Nortel Logs Good Quarter, Great Year

Light Reading
News Analysis
Light Reading
1/19/2001

Nortel Networks Corp. (NYSE/Toronto: NT) rose early Friday after the company released positive earnings results for the fourth quarter and year 2000 on Thursday afternoon. In late morning trading Nortel was up 1.69 to 38.38, a 4.6 percent gain over yesterday’s close.

Investors are applauding Nortel’s good quarter and great fiscal year in the face of so much turmoil in the telecom space (see Nortel Reports Strong Q4). But executives were hesitant, to the point of being defensive, when analysts asked them to break down specific segments of their optical business.

The company's financial results matched analysts' expectations of 26 cents a share. But, in acknowledging an economic slowdown, its projected earnings and revenue growth of 30 percent for 2001 came at the low end of the company's earlier growth estimates of between 30 and 35 percent (see Nortel Soothes Analyst Worries).

For the fourth quarter, Nortel reported revenues of $8.8 billion, up 34 percent from $7 billion a year ago. For the year, it reported revenues of $30.3 billion, up 42 percent from 1999's sales of $22.2 billion.

One milestone for Nortel during the year was in beating its own projected optical revenue target of $10 billion. Nortel's optical sales for the year 2000 were $10.1 billion, more than double its optical sales for 1999.

Based on those strong results, Salomon Smith Barney analyst Alex Henderson told clients in a phone call last night that his firm is maintaining its projection that Nortel will hit $39 billion in revenues in 2001 and $50 billion in 2002. “We’re quite pleased that management provided an upbeat conference call," Henderson said. "We feel this is going to give a strong underpinning to the telecommunications stocks going forward.”

Nortel, though, was appropriately cautious concerning the slowing economy and said it expects business in the second half of 2001 to be more active than the first six months. “As we go in to the year 2001 -- though I'd have to say that the year is going to be a bit more difficult because of economies and how they might develop -- Nortel stands out in the minds of many of the customers I speak to as a very safe buy," said Nortel CEO John Roth (see Nortel's Roth Feels Bullish).

Also, Nortel is being more careful about vendor financing commitments. Its total commitments stood at $4.1 billion at the end of 2000, a $1 billion jump since the end of September 2000. The amount drawn down on that commitment is $1.6 billion. This jump mainly came from Nortel’s financing of Aerie Networks and Xfera, a wireless carrier in Spain. By the end of 2001, Nortel expects its outstanding commitments to be between $3 billion and $3.5 billion, a bit lower than an earlier projection of between $3.2 billion and $3.7 billon.

When asked how much growth would be coming from Nortel’s metro business versus its long-haul business, COO Clarence Chandran sought to rise above the question by giving a vague growth projection. “In the [overall optical market], we see the growth at 35 to 40 percent on average over the next three years or so, and we expect to beat that growth,” he said. He wouldn’t break out how much growth Nortel expects in a given part of the network.

When asked specifically by one analyst about the progress of Nortel’s “router strategy,” Chandran again floated above the question. “With respect to our strategy, what’s really important here is building out the all-photonic network... We’re really focused on light-to-light, and that’s the strategy.”

The overall impression from the call, though, is that Nortel is improving gross margins and finding ways to cut costs in slower growing businesses (see Nortel to Cut 4,000 Jobs). The call was full of some much-needed good news for optical investors.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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stout4555
stout4555
12/4/2012 | 9:00:20 PM
re: Nortel Logs Good Quarter, Great Year
I had thought I heard Chandran say "2nd half" with regards to the OPTera Packet Core (the router strategy) albeit, softly and not with alot of conviction. This would be consistent with his views on the Investor Conference 11/21, at that time, he said, Q1 with second half general availability....

Just an observation....
sshilling
sshilling
12/4/2012 | 9:00:04 PM
re: Nortel Logs Good Quarter, Great Year
i believe i heard john chambers say recently that cisco would over take nortel as the number 1 optical systems supplier at some point.

does anyone (other than chambers) think that is possible?
marcy281
marcy281
12/4/2012 | 9:00:02 PM
re: Nortel Logs Good Quarter, Great Year
no.
kbkirchn
kbkirchn
12/4/2012 | 9:00:00 PM
re: Nortel Logs Good Quarter, Great Year
Cisco has historically accomplished a lot of things that others didn't think was possible...

I'd be very interested in seeing the new market share numbers for Q4, specifically how the metro market is split out. COO Clarence Chandran's response seems to indicate that Nortel is expecting uneven market share loss; given Cisco's strength in the metro market, I'd say that the Metro market is more at risk than the long haul.
rubes
rubes
12/4/2012 | 8:59:56 PM
re: Nortel Logs Good Quarter, Great Year
pass the pipe, you obviously have been double toking........
doncam4
doncam4
12/4/2012 | 8:59:53 PM
re: Nortel Logs Good Quarter, Great Year
Let's see... I can buy my router, agg equipment, and long haul from one provider, and very shortly be able to manage it all from one NMS. Can No'tel do that?
C'murda
C'murda
12/4/2012 | 8:59:53 PM
re: Nortel Logs Good Quarter, Great Year
Don't be so quick to dismiss the notion. The Cisco Cerent 15454 has all but taken over the Agg. & Metro arena. The thier fixing all the bugs with that god awful Pirelli equipment.. With optical and IP slowly but surely converging - Cisco may win by default...
stout4555
stout4555
12/4/2012 | 8:59:52 PM
re: Nortel Logs Good Quarter, Great Year
Pirelli? How are they doing these days? I must confess I haven't really heard much in the way of titanic deals.
sshilling
sshilling
12/4/2012 | 8:59:45 PM
re: Nortel Logs Good Quarter, Great Year
maybe it's not so far fetched to think that csco will overtake nt. i just got done listening to the vitesse conference call and it seemed clear that csco was showing the most growth as a vtss customer, followed (not closely)by nt, and then lucent.
sshilling
sshilling
12/4/2012 | 8:59:44 PM
re: Nortel Logs Good Quarter, Great Year
maybe it's not so far fetched to think that csco will overtake nt. i just got done listening to the vitesse conference call and it seemed clear that csco was showing the most growth as a vtss customer, followed (not closely)by nt, and then lucent.
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