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DWDM

Nortel's Nasty Surprise

Nortel Networks Corp. (NYSE/Toronto: NT) delivered a blow that left Wall Street reeling after market close today: Citing unexpected delays in capital spending among North American carriers, the company slashed its guidance for the first quarter of 2001.

"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

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Harley 12/4/2012 | 8:53:18 PM
re: Nortel's Nasty Surprise Optinuts,

It's just a joke...Again, see Sycamore's site for the details.
tasmandr 12/4/2012 | 8:53:18 PM
re: Nortel's Nasty Surprise With all those big companies "going down", is there really a market for the start-ups such as Jasmine, Caspian Networks....

Tasman
optinuts 12/4/2012 | 8:53:18 PM
re: Nortel's Nasty Surprise get real, guys.

lucent and nortel sell the same stuff ciena does. all this fluff about core director being next gen and taking over optical. its as sonet as they come. i must be on a yahoo chat board. its easy to sell a 100M of this stuff; its when you have to sell 10B of it that the problems with the macro economy come into place.

nortel is right about the US being the problem, with all its failed CLECs. europes monopolies do not have a problem with cap budgets.

harley...its not the cfo (or as michael johnson said, its not the shoes)
optinuts 12/4/2012 | 8:53:17 PM
re: Nortel's Nasty Surprise i was talking about core director, not dwdm.
nortel, lucent, tellabs, and ciena all have core director like products. core director is not specially innovative on that front. it optimizes around mesh, it scales better at higher capacity, but in itself is not a reason to say service providers have changed course in how they implement their networks. its more of the same as far as i am concerned. now if you tell me they are buying ip switchies in lieu of core director i'll believe networks have turned the corner.
Harley 12/4/2012 | 8:53:17 PM
re: Nortel's Nasty Surprise I think so, they aren't processing pure bandwidth. The Village's, Caspian's, et al are trying to push value-added services with their boxes.

If they were pure optical switches, I'd say no. These next gen boxes have some merit I believe.
netskeptic 12/4/2012 | 8:53:16 PM
re: Nortel's Nasty Surprise Naive question about demise of SONET. I was bought on the argument by Sycamore that SONET electronic components are going to be a cheap commodity pretty soon, so it will be perfectly OK terminate every wave of DWDM into SONET chips, then switch them electronically into different waves.

Is this picture drastically incorrect ?

Thanks,

Netskeptic
ExNortel 12/4/2012 | 8:53:15 PM
re: Nortel's Nasty Surprise Oh yea, you think NT will re-price options for everyone this time, or only the executives again?

It's going to a VERY long 18 to 24 months before the stock even comes close to $50 again, even then most of the employees are still underwater on stock options I assume.

Can you say brain drain coming? The likes of which will make the mass exodus Lucent suffered seem small in comparison.

John, Clearance, what were you thinking at the last earnings conference call where you confirmed 1st QTR growth estimates...WAKE UP! Haven't you guys learned from your past mistakes?

Perhaps they'll become cluefull this time and learn??!!??!! One can only hope.

ExNortel
go_csco 12/4/2012 | 8:53:14 PM
re: Nortel's Nasty Surprise "...btw, stop blaming the US economy slowing more than what you had expected. it is the worse excuse. it is YOUR own problem.

the economy hasn't slowed for those like JNPR, SCMR, and CIEN...."

Come on, you guys can't be this clueless!!
Of course it's an ecomonic problem!! Have you guys been under a rock the last few months?!!..

Yes it hasn't effected JNPR, SCMR, or CIEN, but have they been tasked with growing quarterly revenue of 6 billion plus by over 30 percent in this tough market?....

Simple ecomomics here.....Larger companies with larger and more lofty revenue expectations have a harder time when ecomomic conditions worsen.

When nitch players like CIEN, JNPR, and SCMR turn in 6 billion plus revenue, and compete in various markets, then your argument will become more valid.....

go_csco!!
areyousure 12/4/2012 | 8:53:14 PM
re: Nortel's Nasty Surprise Furio states:

"Currently I believe there are only two intelligent optical switches - CoreDirector and SN 16000..."

What about the Corvis Optical Switch? Is it not "intelligent" enough to be mentioned?

:-)

optinuts 12/4/2012 | 8:53:14 PM
re: Nortel's Nasty Surprise i agree, footprint is an advantage ciena has over nortels dx, but nortel has an hdx in the works, which has tremendous density. but footprint isn't intelligence. where's the intelligence? (sycamore sn series has rapid provisioning, thats intelligence) but with core director, ciena is selling a sonet box.
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