Chris --
To make amends, I've listened to the correct call. :)
Here it is. . .
>>>
Q3 conference call, Oct. 24, 2000
John Roth, Frank Dunn, Clarence Shandern (?)
Frank Dunn
7.31B up 42% y/y, 21.4 b. 46% for 9 mos; 574 operations, 83%;
EPS up 64% seq.
90% optical growth , 120% for 9 mos. Metro was strong. Excess of 1 billion, approaching 2 bi run-rate.
Core switching up 25%. Over 25% for year. 130% in Passport portfolio. Enterprise up 6%. Slowdown in voice infrastructure.
In optical area bottleneck has now moved from components to installation areas. Optical revenue will exceed $10billion representing 135 to 145% growth y/y.
Europe up 70%
Asia up 50%
Mobility and optical and Local Internet were drivers
Improvement in Caribbean. . .
44% GMs, up from 42.3%; up from 42.7 seq.
Increase in margins in 2001
Focus has been to meet customer demand under tight component constraints. Going forward effort will be to drive duplication out of systems. SG&A will go up 1% over the year.
13.9% for R&D. 2.88 billion YTD.
Spending on Optical, IP, and 3G wireless.
NT has met its full year 1999 revs and earnings performance.
Optical systems capacity has been delivered. Optical component expansion is tracking to plan. Inventories in 60s. DSOs, significant strides. Total is 15% better. It is 18% better if we exclude financed contracts.
Financed commitments 3.1 billion, up from 2.4 billion in 1999. We provide temp. or bridge financing. Overall portfolio performing extremely well.
Guidance
Next Quarter. Rev. will be low 40%. EPS will track rev. of low 40s. Market will grow in low 20s. 2001 --- NT projects Revs and earnings to be in 30 to 35% range.
Roth:
Rev growth up 90%, strong continued demand. Supply chain coming through. Restoring lead time to more normal levels. Have moved issue to bottleneck to installation forces. Need to install faster. Difficult area b/c it’s knowledge-intensive.
New customers: BT for backbone for long-haul, FT for network here in US. Williams and Aerie. Fiber in increasing volumes in metro area. Capacity increases for systems and components coming on stream as we want it. Growth in European market. Growth over 160% in optics in Europe. Wireless Internet came on strong. Number of major contracts. 1.2B orders received last quarter, bodes well moving ahead. Local Internet continued to do well. Over 35% growth. Core Switching continues to be strong. Both classic switching and new IP and ATM-based core for carriers up 25%. Passport? propelling that, over 100% growth rate in that product line.
Enterprise --- good growth in E-business. Down y/y. But seeing sequential growth. 6% this Q.
Looking ahead: market continues to strengthen. Last year we would have seen 15% growth in expenditures from customers. We saw it move up this year. Looking now into next year we see capX increase in area of 20 to 25%. We should be able to grow in 30 to 35% region.
Continue to do well in Optics. Challenge is installation. Wireless Internet doing extremely well.
Q&A:
Q: Optics exceeding 10Billion this year. Some have said as much as 12Billion. Is installation impacting this? Bookings in quarter?
A: All year long we’ve looked at shipping more than 10billion. We’ve gotten production rates up. Now the issue is in the field. Have to get it engineered and installed. That is next challenge. We’re making good progress. We were positve in order bookings. 11billion orders on hand last year. Added 4billion as of Sept. We don’t ship a lot of product in July-August time frame. Had a lot in Sept, but it’s not collectable. We’re on track for 80 days.
Q: Time frame for installation improvements?
A: We’re bringing on staff as fast as we can. Have to get productivity up, not just get more people on board.
Q: Quantify how much impact installation had in Q3 and projection for year. You would double market share in wireless. . . on track?
A: We don’t quantify that. It is meaningful backlog to work through. Now, plenty of equipment to work on. Our field forces were managing shortages. That’s been removed. With 3G, we’re very pleased with order capture, both in Europe and with early systems here in NA. Core offerings we have sets NT apart.
Q: OpX, SG&A was lower, why?
A: For tax rates it’s 32%. Will be that or lower for end of year, same for 2001. Normal fluctuations, advertising, incentives to sales in June period. . . nothing out of ordinary.
Q: Optical growth rate?
A: We see strong continued growth carrying into next year. Demand continues to go up. Now, issue is to install as a fast as we can ship. To get installation rate up. Wireless as we capture market share and IP in their wireless infrastructure, NT products are compelling as operators recognize they must upgrade. Focus on FO in metro area, that is running at $2 billion rate. Very few buildings are hooked up and that is gaining a lot of attention.
Q: Optical revenues were down sequentially? How could installation cause this? Last quarter you installed at a higher run rate? Is there a difference in products being installed? Did you build inventory?
A: We have shipped product to our customers and they inventoried it. We have come out of supply constraint and they’ve worked their product down. A lot of customers do own installation. We can’t get enough engineers for the ramping growth. When customers feel they on allocation, they don’t want to be short of stock. When we restore lead-time, they bleed back into normal ordering. Sequential growth in the 20% range for what would have been in June Q. We are close to being sold out for optical business for 3Q. Momentum by far is still there.
Q: Clarify optical issue one more time. What confidence on inventory issue in terms of their having over-bought.
A: We looked at customers inventory and that level has come down this quarter. It is now reasonable levels. ATT, from rev. recognition --- we have worked a new program with them. More next quarter than this. Turned up 4 markets. By Q1:2001, we will have met their schedules. Working on S.D. and Las Vegas. Working with Ericsson and MOT.
Q: Inventory issue, with resolving installation issues, how do you characterize component backlog? CO switch business, without ATM?
A: Components: they are not a factor. $1.2b investment over 12 to 15 months. Most of components are in-house. CLEC business is strong. Sig. Growth. Towards LEC it was double-digit growth. Add ATM onto it and you get numbers we talked about.
Q: Data-networking growth excluding ATM?
A: Strong. Enterprise was strong. No specific numbers. ATM runs IP for customers.
Q: Class5 for Dec. quarter, on heels of LU’s announcement. . . And IPO for components’s business.
A: Outlook continues to be strong in low double-digits. Class5 trunk additions to continuing Velocity (?). Rapidly expanding Succession rollout. Components business we’re proceeding down path of doing an IPO. Process is one we’ve learned how to do. Takes about a year. We are seeing strong growth in core switching. RBOCs are out of software buy-out game. 4Q a marginal decrease in core-switching b/c of software we had last year.
Q: What about LU’s comments that Class5 is in serious decline?
A: It continues to confound us and improves each quarter. We have an excellent transition path.
Q: Carrier capital spending, you’re looking about 20% growth?
A: We’re seeing about 20 to 25% from the carrier mix we deal with. We deal with backbone, wireless, Internet, global, etc. It is a high-mix set of customers. We also have high demand. We plan around 30 to 35%.
Q: Metro?
A: Both DWDM and SONET, the whole basket.
Q: Inventory issue was a little bit of a surprise. Going forward how will you monitor that? Enterprise growth? GM expectations?
A: We learned that right now we ask our teams in the field to bring in inventory levels. We are now monitoring that so we’re not surprised again. Margins, continued strength in optical. ATM has good margins. Core tracks. Improved margins in wireless but it’s a tough war. They won’t continue strong. They are below standard margins in industry. Local Internet, that is improving. Overall projections from 43% this year, up more than a half percent improvement.
Inventories --- lead times restored and then customers didn’t need to order extra inventory. That’s behind us.
Q: Optical carrier sales from Q2 to Q3? OC-192 success, do you have a cost advantage. Do you plan to use this to keep pushing prices down to make it difficult for customers.
A: Slightly down. Through our supply chain we have populated every customer with NT product. We are in situation where customers are fully stocked with NT inventory. They are populated with NT gear. We won the accts. by having high NT content.
Installing optical networks involves supply chain. This is an edge-to-edge exercise. It is an art form today and is not easy to replicate. Customers make huge commitment and it brings NT’s entire capability to bear. The value proposition is important for their customers. We don’t see a price war. The proposition is more than just OC-192.
Q: With 40 gig systems, will customers having 10Gig does it make it difficult to install something else.
A: It’s implementation. We’re shipping long haul today. It’s difficult and sophistication of engineering is critical. We’re leading transition from 10 to 40 and is painless with NT.
Q: Any charge against bad debt receivables. No increased guidance from July?
A: Total provisions are 700 million against bad debt. No write-off against it. Guidance of 30 to 35% is considered. We came to this year saying 21% and we grew 48%. We said 30 to 35 for this Q and we did 40-plus.
Q: Looking at market space and some carriers having inventory build-up. How much do you look at their revenue growth and financing position to assess what their demand might be? Double booking and over-ordering. . .
A: One of things we’ve always done is look at business cases of customers and the ones we invest with are the ones with solid business cases and the ones who attract bank financing and support that supports their case. From bandwidth perspective we see velocity continuing in NA and Europe and while nascent in Asia but continuing to grow.
Closing comments:
Extremely pleased with 42% growth. Strong demand. Market is firm. Continue to see that the CapX expenditure on a long-term basis continues to move upward. Restored intervals back to lead-time intervals, so no longer need to hedge. Continue to execute well. Optical, wireless Internet, and optics into Metro markets both in US and Europe and rest of world. Strong outlook for Q4, 40% plus rev growth with earnings to match, an upgrade from last Q. For next year 30 to 35% top and bottom line. |
