CC, Part II:
Q&A
Q: Comment on growth in wireless. Competitors are saying 18%. Any comments on rumors re: corning.
A: About 30% on 6 mos basis, customers didn’t take place in 2Q --- it was back-end loaded. We had tough comparisons. Asia was negative and we had big exposure there. No comment on rumors.
Q: Where are you gaining share?
A: Gaining share in optical. People know the whole industry is growing 30 to 35% and we’re growing 150%. Wireless in NA we’re doing extremely well. 80% growth in access, and we know the industry isn’t growing that fast. Core switching over 30%; it is extremely strong for that part of the business – that is globally. Not many carriers have a smooth transition from switching to packet.
Q: Receivables has changed, why? Wireless, ATT didn’t come through, could you address that?
A: Receivables changed because of GST, tax receivables, 25% improvement is apples to apples. We’ve started taking some revenues but it’s modest compared to what we’ll have in second half. We weren’t an ATT supplier last year. We’re now doing 5 Western states for ATT. We don’t recognize rev till we fire up entire area. We’ll enjoy those expenditures from ATT, but we didn’t in the first half.
Q: Will enterprise have double digit growth? Core switching?
A: sept. is trad a little slower than 2Q. Enterprise we’re targeting double digit in second half, low single to double digits isn’t a bad target. Switching is velocity and strength across the board. ? and ATM contributed.
Q: Pricing pressures in SONET and SDH world?
A: We’ve seen in area of market with products that will compete with OC-192 and there is aggressive bidding. NT has strong position in this market and we have a good cost structure --- been in business over 3 years --- we will not lose on price. Local Internet prices have begun to stabilize. RHK and others report share gains for NT in metro area. Much more a value equation, supply chain, flawless integration. . .
Q: Tightening of supply in optical components b/c of merger activity, can you shed more light on that and what it may mean to optical systems re: revenue growth; $2.5b. for optical components business, how did you generate what you thought market pricing would be?
A: A lot of mergers going on between multiple sources. We want to buy freely in the market place. As choice narrows it makes sense to have our own sources. If we can buy why tie up capital to make our own. If supplies tighten we want to insure we’ll have a good choice of supply at these very very high volumes we’re looking at. We know what it would cost us to make parts we buy and what margins and we apply them to our own parts when we come up with that number.
Q: Tightness of supplies? Will it impact systems business?
A: We’ve always had no hold-up b/c vendors could not supply us and we want to keep it that way. There are fewer to buy from and we want to have a wide choice.
Q: Is there deceleration in second half of year vs. first? Will December be down?
A: When you do numbers in first half it’s a 39% growth curve. We’re calling for high 30s, low 40s to reach that. We don’t want to have a lot of business in Nov-Dec. each year. Expect to see less of peak in Nov-Dec that you’ve seen in past. In past a lot went to LECs. We have a broader base now as compared to previous periods. Our 4th Q will be significant but not as skewed as earlier years.
Q: How is enterprise business doing in respect to PBX and datanetworking. What will drive growth?
A: Lower volume across enterprise portfolio than we’d like to see. Data doing less well than voice. Seeing a fair bit --- we do sales through distribution channels, if you look at traditional channels, Williams, etc., they’re merging and have some confusion. Doing more direct sales. Not large enough to compensate for channel disappointment. As merger issues are solved they’ll pick up ordering. Better momentum in second half.
Q: Optical systems business, if you look at numbers --- 2.5 billion at vendor level – shows substantial growth rate through 2000. Can you continue momentum in optical? Also gross margins, strong in optical and switching, was that off-set by enterprise networks?
A: GMs, first: our optical margins are better in Q and 6 mos than a year ago. Our core switching were flat. New products to access and margins down there. Margins to enterprise declined. Significant growth in optical. Will see growth as we go through manufacturing ramp. Some of those components will be used internally and some will go outside. Now reaching a point where we can supply partners.
Q: TDM and packet are good blend. What is breakdown? Acquisitions, update on progress in terms of revenue or however you want to quantify.
A: Velocity in accession business, only real choice is scale for smooth transition globally. Absolutely leading the market. BT in Spain. . . succession in enterprise portfolio. TDM systems in enterprise going to ATM. Growth will continue and potential for business for Passport continues to grow at rapid rates. We have displaced a couple people in this area in NA and Europe. See carriers who are upgrading systems in Latin America and Asia are looking at us, too. Acquisitions, GlobalCrossing building using Qtera, ramping production in other areas. Chiros and Q? and Qtera in alpha in first half and shipping in second half.
Q: On optical supply chain, it looks like you can sell anything you can make. Will it eliminate bottlenecks or will it continue?
A: It is fairly well balanced now.
Q: NextGen optical, can you do 10G? 40G? How will change happen?
A: NT is taking leadership to next level. We will see 40 gig as the next differentiator. As we bring acquisitions on stream. 2002 we’ll be working with customers in networks.
Q: Growth in circuit switching? JNPR venture and IP routing? GMS if enterprise rebounds?
A: Juniper, first: customers who can benefit from best-in-class optical components. NT’s presence allows our customers to enjoy the leadership of both. Optera packet core team will scale to 6plus and 10Plus terabits in 2001. Program on schedule. Arrangement with JNPR is 3-year alliance. Will allow us to offer routers with portfolio and will be sold with entire line up of NT’s products. Optera packet core is where we differentiate with customers. They’re excited where we will migrate them to. It is a solution; not a box. We are seeding the market. Velocity with universal edge product we’ve changed the game in how we’re taking networks to next stage. GMS, uptick in 2001.
Q: Multiple component providers --- will this impact M&A in this sector?
A: M&As, we haven’t decided what we’ll do in that regard. We need to see the nature of the consolidations. We will have large investment to assure supply. ATT is modest, significant in July, customers are pleased with performance.
Q: What are issues?
A: There is no delay. This is as per our schedule. And ATT has extended business into other areas.
Q: Optical investment, actives versus passive? What percentage are from merchant suppliers?
A: No breakdowns at this point? We would buy it all if we could. Circuitboard manufacturer --- we wouldn’t do it ourselves if we could buy it outside. Good mix of both.
Q: Focus on consolidation of channel, doesn’t there play an important role in proximity to suppliers? What are you seeing in productivity improvements?
A: When we’ve increased output our suppliers have increased their output 150%, too. Suppliers have put a lot of capacity in place for us. Don’t want to take anything for granted. We are not concerned this year. We’re looking out a few years and looking at demand and want to make sure we have dual sources. We don’t want a storm or some event that takes someone down. This refers to 15 to 18 months.
Q: On optical systems side, looks like your win of prime contract positions has pulled through in a lot of products. Your competitor has pricing pressures. Is this impacting your pricing?
A: Can’t comment on competitors. Our customers want to get to market quickly. They want leading networks on an end-to-end basis. Optical is absolutely essential if they want to turn up systems. We have leading edge optical systems. We have leading edge products that set us apart.
Q: Enterprise software, as we scale will be get to billion dollar run rate by end of year? What is growth and what about margins?
A: E business growing quickly now and it will continue. Shift from data/voice, but overall portfolio will grow faster than market --- market is in the teens.
Q: Traditional business, TDM business, was that product up? Passport?
A: Customer take-out in carrier and service providers, etc., Passport15000 we are approaching pt where we’re the first choice going in because it allows a customer like an attack carrier to meet other transitions. Holes created around world for this kind of transition are big enough for us to approach significant growth rates.
Q: Access, is it spread out?
A: Yes, it is absolutely across the board.
Closing comments: pleased with Q, strong order book coming, orders 1.35 on top of 48% rev, a lot of that for optical, strong growth in that business. . . |
