Stellar second-quarter profit expected from Nortel
(All figures in U.S. dollars unless indicated)
By Susan Taylor
OTTAWA, July 23 (Reuters) - Nortel Networks <NT.N><NT.TO>,
the world's No. 2 network equipment supplier, is expected to
beat profit estimates when it unveils second-quarter results on
Tuesday, as growing Internet traffic pushes up demand for its
fiber-optic networks systems.
Analysts said a combination of enduring strength from
Nortel's fiber-optic suppliers such as Corning Inc. <GLW.N> and
SDL Inc. <SDLI.O>, coupled with weakness at arch-rival Lucent
Technologies Inc., <LU.N> also suggest that Nortel will outdo
expectations.
First Call/Thomson Financial said 29 brokers expect, on
average, a profit of 15 cents per share. IBES forecasting
service also reports a consensus estimate of 15 cents per share
from 30 brokers.
"People are looking for a couple of pennies higher than the
consensus number and, actually, I think they could put that to
shame," said John Wilson, an analyst at UBS Bunting Warburg
Inc., who expects revenues of $6.7 billion and a profit of 14
cents per share.
"We just think that the optical business -- as much as
we're bullish on it -- is going to be phenomenal for these
guys."
Brampton, Ont.-based Nortel's fiber-optic systems can carry
more voice, image and data information than traditional copper
phone lines.
The company, which reported 150-percent growth in optical
equipment revenues in its first quarter, has said it expects to
sell $10 billion in fiber-optic gear this year.
Analysts said that problems with producing new fiber-optic
products at Lucent may help Nortel further its market lead.
Lucent, the world's largest telecommunications equipment
maker, posted a third-quarter loss on July 20 and cut its
revenue and profit growth outlook. It said efforts to boost
production of new fiber-optic products were taking longer than
originally planned and sales of traditional telephone switches
were falling faster then expected.
"Nortel's running at full speed putting down footprint,
while Lucent's still trying to build traction," said Wilson.
"It's a great long-term shift that's going on right now."
Merrill Lynch said in a report that several indicators,
including booming fiber-optic sales, suggest Nortel could
better its revenue estimate of $6.6 billion and earnings
projection of 14 cents per share.
The report cited recent statistics from market researchers
Ryan Hankin Kent that give Nortel top spot in the 1999 optical
transport market with 29 percent market share, followed by
Lucent at 24 percent and Fujitsu at 14 percent. That market
grew 56 percent in 1999 to $12.3 billion, it added.
"We track a number of Nortel's suppliers' results and use
them as early indicators of Nortel's quarter," the report said.
"Almost all indications from suppliers point to potential
upside in Q2 results."
The Merrill Lynch report added that Nortel's recent
contract wins are "positive indicators of the momentum in the
company's business plan and confirmation of the strength of its
product line".
Nortel announced last week a multi-billion dollar deal with
WorldCom Inc. <WCOM.O> that extended an existing purchase
agreement and a contract extension worth up to $1 billion from
Williams Communications Group Inc. <WCG.N>.
"Nortel is clearly hitting on all cylinders right now and
the expectation is that the market is growing faster than
originally expected -- Nortel's gaining more market share,"
said Michael Neiberg, an equipment analyst at Chase Hambrecht &
Quist.
($1=$1.47 Canadian)
((Susan Taylor, Reuters Ottawa Newsroom, 613-235-8385,
e-mail susan.taylor1@reuters.com, fax 613-235-5890))
REUTERS
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