NT story and the fallout.
09:19 ET ******
Nortel Networks (NT) 16.76: Doh! Just when the market was gaining some traction over the last few sessions, the world's largest supplier of fiber-optic network equipment comes along and warns for Q1 again. NT now expects a loss of $0.10-$0.12 on revenue of $6.1-6.2 bln. Just over five weeks ago, the company pegged $6.3 bln in revenue and a loss of $0.04. The usual suspects were cited: the economic downturn, reduced/deferred capital spending and increased pricing pressure. The company also stated they are now seeing customers globally assessing the US economic downturn on their business. Nortel is planning further work force reductions which by mid-year is expected to total 15,000 job cuts since 12/31. It's difficult to flesh out additional information as the company did not have a conference call nor did it provide full year guidance. As a result, expect to see a wide variance in full year estimates from the analysts. Merrill Lynch, SG Cowen and Wachovia all downgraded the shares to Neutral...Is it time to bottom fish in the optical equipment space? In general, Briefing.com believes it is still too early. Analyst estimates are changing this morning, but one has 2001 EPS of only $0.20 with next year at $0.48. Even with Nortel trading at $14.52 in the pre-market, that is still a forward p/e of 30x. Also, momentum for the stock is unlikely until there is a palpable improvement in broad sector visibility. A couple of months ago, companies were anticipating a rebound in the latter half of the year, but the time frame is becoming less clear...Nortel is affecting a number of other companies. JDS Uniphase (JDSU 23 5/16) is weak in the pre-market because of its exposure to Nortel which accounts for 15% of sales. Other suppliers that are weak include Corning (GLW 24.99), Applied Micro (AMCC 21 5/8), PMC-Sierra (PMCS 31.40) and Broadcom (BRCM 33.47). Competitors include Ciena (CIEN 53 13/16) and Cisco (CSCO 18 1/8). The latter could be coming out with another warning of its own soon as over the weekend its CEO was negative on the market just as he was before the last time Cisco warned. Also, yesterday Briefing.com sources were indicating that Lehman was slashing AprQ estimates. Cisco could be the next to warn. Another related company which surprisingly has not warned is EXFO (EXFO 29 7/8), a telecom/fiber equipment optic tester. With its exposure to this group, we would be nervous on EXDS. -- Robert J. Reid, Briefing.com |
