What started as a initial backlash by NT investors (dissing Roth) is now turning into a bit of candy-coating. The fact is Roth was guiding analysts to expect $12B in optical revenues... now he is saying to expect $10B plus a little. This is effectively lowering top line guidance... and that is why we're getting the reaction.
Phoenix - This is what was reported as Nortel's guidance. My take is that some analysts chose to mislead themselves. Others may differ in their thinking:
Message 14399537
>>Roth said on Tuesday the company is "sold out" of its fiber-optic gear and that sales of $12 billion this year are "possible". At the upper end, revenues of $13 billion are "probably not possible", Nortel spokesman David Chamberlin told Reuters.
Roth, who was speaking to reporters at a corporate event in California on Tuesday, had said previously he expects the company to sell more than $10 billion in fiber-optic products this year, which many analysts interpret to mean $12 billion. <<
As Mtnlady has previously stated, Roth is an engineer and he speaks in very literal terms. I don't think the fact that some analysts chose to take the $12 billion as a given and run with it will escape his attention.
Also, I don't know how much more Roth can pound the table about how Nortel's lumpy revenues are always going to be a fact of life due to the huge size of NT's contracts and that revenues are recognized only after installations are complete, not as the installation process progresses. The degree with which the analysts choose to ignore this, both when quarterly revenues are both up and down, is rather amazing. JMHO, but it appears to me that the individual investor is doing a lot more DD in studying and understanding the business fundamentals of their investments than the financial institutions.
Roth has also previously stated that the bulk of NT's optical revenues are coming from new carrier entrants rather than the established players. While I was a long way from being pleased about the lack of visibility for the installation problems, I consider stuff like this as the normal price an extremely aggressive company pays for being the the first mover and overwhelming market leader in the uncharted waters of optical gear, particularly when their customers are mostly new players.
I do, however, think criticism for not anticipating the installation problems is warranted. A quick look at the the thin technical expertise in the upper management of some of the new carriers should have sent up warning flags. Despite this, I do think that NT is likely ahead of most of the competition in coming to terms with the reality of adjusting their business model to the reality of having to do some heavy customer hand holding going forward.
If the analysts had the brains they were born with they would be asking themselves some tough questions about some of their other optical holdings. Nortel has a very deep and experienced technical bench. If NT is facing installation problems with the newer carriers it certainly gives one pause about the future prospects of some of the newer vendors with little or no carrier experience. It appears to me that the issue of the expertise needed to competently plan, deploy and operate a carrier network has been grossly ignored by the financial community. peggylynn |
