Old Nortel Shipment Delays Not Seen Harming Results
By Lydia Zajc
TORONTO (Reuters) - Nortel Networks Corp. (NYSE:NT - news) had serious shipment delays in its profitable and fast-growing fiber optics production in April and May, but most analysts now believe it will not harm second-quarter results.
Brampton, Ontario-base Nortel has been steaming ahead with equipment production to jam voice, data and video down the same lines, but it suffered shipping delays in its second quarter, analysts said.
The problems seems to stem from a mix of software bugs and trouble ordering parts but are not likely to extend beyond one quarter since Nortel has likely made up the shortfall already, according to sources who declined to be identified.
Nortel spokespeople said they could not comment immediately.
The company's stock dropped C$2.30 to C$131.70 on more than 1.2 million shares traded on the Toronto Stock Exchange in mid-afternoon trading. In New York, it fell $1.63 to $89.44.
''The shipment delays were cleared up by mid-May and...as best I can tell, they did not impact the quarter,'' said one analyst.
Robert Wilkes, and industry analyst with Brown Brothers Harriman, added: ''Overall demands are strong and there had been component shortages in the fiber optics (sector).''
A third analyst was concerned about the problem.
''This was a very serious issue for Nortel and it was primarily focused on software bugs and it's not something to be taken likely,'' he said.
''It's their highest growth area, it's their highest profit area, and they had a serious logistics problem.''
Most analysts spoke on condition of anonymity due to the sensitivity of the subject matter.
Observers indicated that Nortel, one of the world's biggest players in the communications equipment industry, had installed Baan Co N.V. equipment around that time. Nortel has had problems with Baan equipment in the past.
''It's odd that this story came out just after the week after the quarter ended, when it appears to have been known to management during the time when they were reporting and discussing the first-quarter results and second-quarter guidance with analysts,'' said a fourth analyst.
''It is likely to be simply a one-quarter hiccup that companies normally see, but it is a hiccup in their fastest-growing product line. It is responsible for a very good chunk of this year's growth...Carriers want the product yesterday. There may be an exposure here, where they are tempted to go to other vendors,'' he added.
Nortel has likely made up the slack, but the stock price is too high, the analyst added. ''Driven up by U.S. momentum investors, it's an exposure I think we'd rather not have,'' he said.
''The summer quarter's weak for tech: the fourth quarter is always very, very strong for Nortel in earnings; the lion's share of the earnings come in the fourth quarter. This could make the shoulders required for the fourth quarter and for broadband much wider...All in all, we're more nervous than we'd like to be,'' the analyst added.
Also Thursday, brokerage AG Edwards cut Nortel's rating to maintain from accumulate.
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