Nortel's Nasty Surprise
"The carriers are very nervous about their ability to get new capital," said CEO John Roth in a conference call with analysts late today. "We thought they'd go through this period for about a month, that after January things would clear up." Instead, he says, the carriers have changed the way they're doing business. They're counting "each and every dollar" and seeking to saturate their existing data infrastructure instead of investing in new gear.
As was the case in its last earnings call, (see Nortel Logs Good Quarter, Great Year), Nortel seemed reluctant to point to specific products and markets. Executives did, however, say that sales of optical circuit switching gear was going to be particularly hard hit in the quarter.
All this, Nortel says, has cut the legs out from under its revenue guidance to investors. Revenue growth expectations are now 15 percent for the first quarter of 2001, less than half the original estimate of 30 to 35 percent. Revenues are expected to be $6.3 billion, instead of the $8.5 to $8.8 billion originally set out in last quarter's earnings report. The company expects to realize a loss of $0.04 for the quarter.
What's more, the company says that in order to cut costs sufficiently to meet even these figures, it must lay off 10,000 people, or more than 10 percent of its present work force. Nortel announced in January that it would be laying off 4,000 people, roughly 4 percent of its work force (see Nortel to Cut 4,000 Jobs).
Nortel maintains that throughout all this, it won't be losing any market share. The overall U.S. market, executives say, will realize half of the 20 percent growth the company originally predicted.
The news is in stark contrast to the earnings report early today of Ciena Corp. (Nasdaq: CIEN), in which revenue guidance was raised substantially and executives claimed that visibility into future good fortune was better than ever.
Coincidentally, Ciena's key message this morning was that carriers were turning away from Sonet-based gear and embracing next-generation optical switches. Nortel's guidance reduction seems to bear this out -- at least in part.
Analysts seemed frustrated with Nortel, confronting Mr. Roth during a question and answer period with past reassurances about guidance (see Nortel Soothes Analyst Worries) and telling him the numbers didn't make sense. Some expressed concern that Nortel's numbers could be worse than anticipated.
Nortel wasn't helped by the logistics of the conference call itself: Apparently the overwhelming volume of calls swamped the conference provider, causing analysts to miss most of the first half of Roth's talk.
-- Mary Jander, senior editor, Light Reading http://www.lightreading.com