Excerpts from CNNfn piece on Nortel ...
Interestingly enough ... the news being good in the present tense but just not good enough for the street as they continue to look forward. Our Stocks Editor, Amanda Lang, has been following this story, all morning, all afternoon .. and and the Toronto Stock Exchange, right now, has actually shut down trading for Nortel, the volume just way too heavy.
Amanda Lang (Stocks Editor CNNfn):
That's right .. halted it .. they think for the rest of the day .. quite possibly because of the volume of trading. It of course represents a huge portion of the TSE's total volume. Nortel did meet expectations. Revenue number 7.3 billion. The trouble is of course 2 things: 1. The street, some people on the street, expected a higher number .. and that is partly because companies have a way of guiding lower than they should .. and analysts put higher numbers on these things and they they get their number. In this case, management had said 7.3 billion would be the revenue, and 7.3 billion was the revenue .. and the stock is off at least in part because Nortel has a habit of beating that top line number and it didn't do so. But also, of course, because there's concern about its optical business. It did say that that is going to grow to 10 billion .. and in Mid-September, the CEO said 12 billion. Now some analysts are saying .. is this semantics .. because actually he said "more than 10 billion" today. This has some concerned that they are actually lowering guidance. Some of the other numbers, though, pretty good. Gross margins rose 100 basis points, year over year, (er 170 basis points?) to 44% .. and that was better than any analyst had expected, as far as I know. Operating margins of 11.2%. They seemed to steal market share from Lucent. They confirmed that they are going to spin off this optical group. They also reaffirmed this top line guidance of 30-35%. So Mike, they lowered by 5% the revenue growth that the company is offering. But, again, still pretty strong.
Some analysts are concerned however ...
- Cash levels fell
- Exposure to vendor financing rose although most on the street agreed it's not a huge issue for Nortel the way it is for Lucent.
And, of course, there's this issue of whether or not the optical business is slowing .. or whether or not this is a one time blip .. because there was an inventory buildup at some customers, and because, as they said, they had trouble getting the consulting implementation side .. getting these projects going. That could well pass. You can see that it just took a major hit on the other optical stocks.
I guess at a time like this investors must be thinking .. is this a trend, is it an overreaction, did we overplay the optical sector?
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Thank you Amanda Lang and CNNfn
Complete transcript available at 1-888-CNNFN-01
Web Site: cnnfn.com |
