Nortel conference call, February 15, 2001
But first, your quote is a great lead-in:
In contrast, Nettles says he expects Ciena to dominate the market for long-haul DWDM gear, which Ciena predicts will be close to $4 billion in 2001. Chief competition in this space will come from Nortel, which according to Nettles has linked its optical solutions too closely to its existing Sonet kit. "They're a tough competitor, but they're going to be hamstrung by not having the right products at the right time."
Based on this afternoon's conference call, the biggest area of decline is US long-haul, and since there were many references to the declines being in switched, not circuit, I assume they mean SONET. And based on your comment regarding Ciena, it's clear DWDM isn't being impacted.
Herewith, the cc notes:
>>>>>>>>>
The down turn in carrier spending is deeper and longer than earlier expected. US carriers are filling up capacity before adding more. Decline in spending is more in US than other areas. Strong growth still seen in Europe and Asia, including China. Industry growth seen at 10% and NT’s revenue seen at 15% for 2001. Q1 will have $6.3B with ($0.04) EPS.
Stepping up efficiencies. . . Dropping headcount by 10,000 with 6,000 already complete. This is due to unfavorable product mix and higher fixed costs. Growth will accelerate in subsequent quarters.
Q&A
Q: Overall 10% rate seems to be negative in US, what about other details?
A: Optical Metro has great growth --- at 30 – 50%; long haul at 20%; UMTS slipping from Q4 to Q1. Switching continues on the same track we’ve been seeing [i.e., sharp declines]. Carrier assessment is project by project. Carriers using their current resources before adding more.
Q: Is switching decline more severe? Is that where headcount declines are?
A: Declines are dictated by where growth is. High growth areas will continue to add, and actions will be taken on low growth areas.
Q: Guidance seems conservative for Q1 and more accelerated later. What is driving acceleration?
A: Leadership in local Internet/Metro --- that is growing. Core networks continue their take-up, we will be no one in second half --- Verizon continuing. Enterprise continues. We see service provider caution more than in the past in terms of growing networks. Cost structure is key to spending --- must drive to high value businesses.
Q: Why earlier confidence?
A: At that time we saw carrier budgets but one by one they’ve been reviewed. Carriers nervous about getting capital. Want dollars to bring in revenue.
Q: How long?
A: We thought it was a slower caution than it is. Carriers want networks filled up before adding more.
Q: Book to bill was one. What now?
A: We continue to get orders. Customers aren’t changing but it’s a time to deployment issue.
Q: Q4 shipment hold-ups, are these involved?
A: We were on plan. We could have shipped more.. Deploying optical. Circuit switching has slowed considerably.
Q: Guidance on numbers? You’ve gone from 1.00 down to .80, but Q1 is down by .20. How do we have more deductions in Q3 and Q4? Headcount doesn’t seem large enough.
A: Outsourcing --- costs are externalized. There still are a lot of purchases.
Q: More color on your logic?
A: Costs are dropping but net is favorable. Spending is coming down.
Q: I missed first half of call. What was guidance? What about optical components?
A: [restates guidance] Regarding optical, customers are investing in utilizing capacity and not spending on new routes. [metro vs. long haul] Metro continues b/c that’s where investment is. Long haul delayed to 2H (and likely into Q4). In Asia and Europe growth continues. We have not lost market share. |
