Nortel CC notes (all mistakes mine. . . my middle daughter messed with my sound system so it was on "echo chamber" the whole time. Sorry.)
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Nortel Q4 Conference Call, January 18, 2001
[See press release for financials]
Revenue and earnings: set objectives at 20—21% and exceeded that. Set 40% for revenue and came it at 42%. Optical expectations $10B versus actual at $10.1B. Low end of carriers was due to CLEC downturn.
GMs estimated flat but were 43.5% for full year, vs. 43.2%. 45.5% for Q4, vs 44% seq.
R&D --- 13.2% vs. 13.7% pro forma last year.
Customer financing. 1.6B at end. 1.5B increase. 4.1B committed. Increase of 1B from 3Q. Inventories --- 80 days, higher than 60-70; some wanted to deploy early in 1Q. By 2Q will return to normal range.
Capital expenses: $2B targeted on optical networking.
Less visibility in entire sector b/c of economy. Time perspective. 2001 needs fed reserve to take action. Prudent to leave guidance at 30% for year. Expect to see acceleration in second half. First quarter estimate at $8.1B, 0.16. eps.
Photonic component 2.43B --- up 152% y/y.
John Roth:
Extremely pleased with strong results. Broken 30B mark. And brought in year at guidance from end of June Q.
$10B in optical. 152% y/y. Ability to meet customer demand , moved from 29% to 30% market share. Europe we are number one. Intend to increase market share. WCOM we lit a system. Also launched a 10gbps system.
IP core and wireless systems also strong.
Packet transition strategy exceeds expectations. 150% y/y growth.
Local Internet – increasing focus. Impacted by CLEC pressures. Our focus is fiber optic-based and we’ll see continued growth.
Enterprise --- standing up compared to other leaders in the segment.
Strong optical position.
Going into 2001: if year is going to be more difficult b/c of economy, NT is a safe buy according to customers world-wide.
Why NT can extend its lead in global high-growth segments. Specific reasons:
· moving to bandwidth intensive infrastructure away from processing infrastructure.
· Our leadership in IP and optics and wireless gives us good position --- DWDM and SONET/SDH growth in leadership.
· 2001 will move leadership to Asia --- optical market will have exponential growth.
· Qtera and Xros will add capabilities we need to deploy optical solutions that are scalable to multiple fiber streams.
· Wireless Internet --- we see shift to IP-core networks and low-cost bandwidth.
· Our 3Gen core infrastructure is guaranteed to lead --- makes customers business plans much more robust.
· Expect to increase and double market share by 2003.
· Local Internet --- silicon consolidation that is occurring, there is an unstoppable shift to low-cost bandwidth infrastructure. Leadership will go beyond optical, past the desktop, beyond the city. . .
· Solutions are now applicable to the enterprise. This is fueling the growth of Alteon and Shasta.
· In optical component segment we continue to be a leader, including for 10 gbps systems.
· Positioned for another successful year.
Q&A
Q: BtoB? Conflict between guidance for Q1 and uptick in deployments?
A: BtoB was one. Order flow is traditional.
Q: (Nikos) On vendor financing, came in higher than anticipated, but outstand amt. was lower. 2.3 to 2.7B outstanding --- what is target? What about profitability in enterprise business?
A: 1.6B was higher, but we didn’t give guidance. 3B to 3.5 now. [I don’t understand this.] Enterprise --- tracking strongly.
Q: SG&A, what is range for 2001? Photonics components business externally?
A: SG&A flat for quarter. Driving efficiencies down. Prudent to put reserves up. Photonics just under $500M was customers. 2.4 to 2.5 business. The difference is customer business. Will bring SG&A down to lower end of 18% level.
Q: Linearity in Dec. quarter? What about 3G revenues --- 2001 or 2002?
A: Proforma in Q4. No different. Did see slow-down in CLEC activity. 3G --- expect deployment to be in 4Q 2001, with volume in Q1 2002. Some revenue at end of year.
Q: Wireless growth in 2001? What happened to optical correction?
A: Actually seeing over 25% growth. (France, Italy and Germany). Yes, this is industry growth and also NT. Optical inventory is behind us. Most was noise level. We came in at guidance --- at top end.
Q: Looking at optical core next year and long haul?
A: We see 35 to 40% over the next 3 years and we expect to beat that growth. What about long haul? Long haul versus metro? We don’t break that out.
Q: CLEC?
A: We don’t give that information. (I missed question). Strategy is to build out all-photonic network. [discusses particular contract areas. . .]
Q: Margins look strong vs. forecast.
A: Optical margins showed significant improvement y/y. Overall business was strong. Only margin lower than expected was access.
Q: Circuit switch business, what is growth outlook?
A: Focus is to take circuit to packets. By end of year we’ll be at 40%. Have excellent velocity with customers. We have the only full solution from circuit to packet. We’ll gain velocity against others. As customers begin to deploy IP services, that’s where you see the curve.
Q: Expectations re: economy and over-all spending growth in carriers?
A: We see economy which slowed from middle of last year. We see it increasing in second half. We have an ability to go after a high percentage of growth potential. We see end demand not going away. Capital markets have tightened. CLECs seeing it. Many customers are working hard to maintain capital. As markets improve we’ll see change. Customers see low-cost bandwidth can save costs. So the demand continues.
Q: ?
A: No traditional change in profile. Will have strong second quarter and very strong 4Q, as is tradition. No significant profiling changes.
Q: Wireless, where is strength, North American or elsewhere? When recognize revenue from 3G wins? When in backlog? Growth in new segments? What’s in “other?”
A: Optical in metro is strong plus intercity leadership. Also wireless. We outpace all others in Passport Portfolio. Balanced growth across optical and wireless. ATT leads in wireless. [Didn’t follow discussion on different products.]
Q: Where is optical strength? Some major networks have yet to implement 10gig networks, do you expect them to do so in future?
A: See stronger growth in metro, but no granularity. Can’t comment on particular systems.
Q: Optical components, 2001 revenues? What about spending at incumbents vs Greenfield? Wireless?
A: Components, we continue to develop technology, for example for 40 gig, developing Raman pump unit, fiber amps, increasing focus on integration. Spending, some of customers are looking at demand, so no clear answer on that. I see established players coming out first. 95% to be large opportunities and the others we don’t participate in. We get much higher quality. Total financing is higher but also higher quality.
Q: Competitive landscape in optical networking?
A: We gain share in metro. Each of our leadership categories complements the others. Quite confident we’ll continue to gain share.
Q: Wireless q/q growth?
A: Strong. We work closely with accounting teams. Accounting practices are much more stringent than a year ago.
John ---
Fantastic year
Delivered against expectations
Enter 2001, have strong position, leadership in optical, growing stature in IP networks of all kinds. Gain is widened. This year has had rocky spots but worked to benefit of NT. |
