Nortel Logs Good Quarter, Great Year
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