<font color=Fuchsia>Nortel ($45) plunges to 7-month low
Fiber-optics rivals follow Nortel lower
By Martin Cej, CBS.MarketWatch.com
Last Update: 4:19 PM ET Oct 25, 2000 NewsWatch
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BRAMPTON, Ontario (CBS.MW) -- Nortel Networks shares plunged 29 percent Wednesday, erasing their gains for the year, after the company fell short of some analysts' revenue forecasts in the third quarter.
Shares of other fiber optic equipment makers such as JDS Uniphase, Ciena and Corning tumbled in its wake as investors questioned what they were willing to pay for a share of these companies' future earnings.
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10/25/2000 6:16:56 PM ET
Nortel (NT: news, msgs) shares tumbled $18.31 to $45 on the New York Stock Exchange, its lowest since April. Some 123 million shares changed hands, about 9 times the average daily trading volume. Nortel's Canadian shares slumped 24.55 Canadian dollars to 71.55 Canadian dollars before being halted on the Toronto Stock Exchange due to an "unprecedented number of orders" that was so great investors wanting to buy and sell other stocks couldn't get their orders processed.
Prior to Wednesday's plunge, Nortel stock was up 20 percent on the year.
Unfortunately for Canadian stock investors, Nortel accounts for more than 30 percent of the total market value of the benchmark Toronto Stock Exchange 300 Composite Index. Nortel's slide drove the index down 8 percent, its biggest one-day slide since October 1987.
"Nortel was the last man standing," said Brendan Caldwell, president and chief executive of Caldwell Securities in Toronto. Caldwell Securities manages about $330 million in assets, including Nortel shares. "All the other big tech names had already fallen through important technical levels, now we're seeing it happen to Nortel."
The revenue shortfall countered Nortel's statement late Tuesday that it expects earnings per share from operations to grow a bigger-than-expected 40 percent for all of fiscal 2000, compared with previous forecasts of growth in the high 30s.
"People expected a lot, the company gave a lot, but that's not good enough in a market this nervous," said Stephen Gauthier, a portfolio manager at Pictet & Co., which oversees about $100 billion in assets, including Nortel shares. "Revenues were a bit on the light side, but the guidance is good."
"If anything, we'll be buying more," Gauthier said.
Analysts at Merrill Lynch agreed. They reiterated their "buy" recommendation on the stock and told investors that "this is an unusual temporary event and gives a unique opportunity to buy a significant market leader on weakness."
Analysts at Lehman Brothers decided the announcement would hobble the stock's advance for quarters to come, however. Lehman cut Nortel to "outperform" from "buy" and slashed their price target for the stock to $55 from $100.
Nortel said third-quarter earnings from operations, excluding one-time charges, soared to $574 million, or 18 cents a share, compared with 11 cents for the same period a year earlier. Analysts surveyed by First Call forecast that the Brampton, Ontario-based company would earn 17 cents a share.
Revenue rose 42 percent to $7.3 billion, about $200 million shy of the average estimate of analysts polled by First Call.
Nortel's report dragged other fiber optic and networking companies lower. Fiber optics use beams of light to transfer information at high speed from the Internet and phone calls, rather than electrical signals. JDS Uniphase (JDSU: news, msgs), which builds equipment for use in fiber optic networks, tumbled $24.06 to $71. Some 30 to 35 percent of sales at JDS Uniphase stem from NT and Lucent (LU: news, msgs) according to analysts at SG Cowen.
SDL Inc. (SDLI: news, msgs) dropped $81.80 to $234 and Ciena (CIEN: news, msgs) tumbled $27 to $108.38. Cisco Systems (CSCO: news, msgs) fell $4.25 to $50.63.
The Amex Networking Index ($NWX: news, msgs) tumbled 12 percent.
Duncan Stewart, a portfolio manager at Tera Capital in Toronto, pointed out that while Nortel's revenue from its optical business grew 90 percent in the third quarter from the same period a year ago, it was actually slower than the 150 percent surge in the second-quarter.
That rattled many so-called momentum investors, Stewart said.
"Quarter over quarter, revenue from the optical side was down," Stewart said. "Growth actually fell, but that was really more of a problem with getting the equipment installed. They didn't have enough people."
"We're buying the stock here," he concluded.
Also weighing on the shares, Nortel said its net loss widened to $586 million, or 20 cents a share, from $79 million, or 3 cents a year earlier.
Chief Executive John Roth said the company expects revenue and earnings per share from operations to grow between 30 and 35 percent in 2001.
Nortel rival Lucent ousted chief executive Rich McGinn Monday after falling short of estimates in three of the last four quarters. The company also lowered its earnings estimates for the next quarter.
"Nortel is not Lucent," Stewart said.
"Nortel is talking their earnings guidance up and this is a company that typically under promises and over achieves," he argued.
Nortel said its sales, general and administrative expenses rose to 18.9 percent of revenue in the third quarter from 18 percent a year earlier. Expenses generated in research and development slipped to 13.9 percent of revenue from 14.9 percent of revenue a year ago.
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Martin Cej is a reporter for CBS.MarketWatch.com. |
