And here's another one. BTW, covered my short on this today, but it may be early.
Reading the Insider Tea Leaves at Nortel
By Jay Somaney
2/16/01 4:35 PM ET
Readers have been asking me the one question on everyone's mind today: Is Nortel Networks (NT:NYSE - news - boards) a good bet after its 33% haircut?
My answer? To run as far away as you can. Despite the shellacking Nortel is receiving in the markets today, the company's problems have just begun. Of course, you might get a dead cat bounce as so-called bargain hunters swoop, however the extent of the miss tells me that the good ship Nortel is heading for an iceberg at full steam. She could be another Lucent in the making -- without the accounting irregularities, of course. In the conference call yesterday you could almost sense the beads of perspiration on John Roth's face as he tried to explain away what in anyone's view has to be an absolute disaster.
Nortel, in a shocking announcement after the market closed yesterday, announced that it expected to lose 4 cents per share for the first quarter of 2001. In its guidance, just a little over three weeks ago, Nortel had expected earnings of 16 cents per share. In addition, the company now expects revenue for the March quarter to come in at approximately $6.3 billion, down almost 23% from its previously expected $8.1 billion.
The company is now valued at 22 times estimated 2001 earnings, and a little under two times estimated 2001 revenues. In order to streamline costs with the reduced demand, Nortel also announced that it intended to decrease its headcount by a total of 10,000 employees worldwide by the end of 2001.
Nortel's U.S headquarters are in Richardson, Texas, which happens to be only six miles or so from where I live, in Plano. Nortel has around 10,000 employees in the Richardson Telecom corridor. Consequently, I have a lot of close friends who work at Nortel. Over golf games and at dinners, the common theme discussed by these folks was that Nortel had seriously miscalculated demand at the beginning of the year.
Many of them were selling their stocks going into the end of January and banking the proceeds. To most of them, a shortfall was more than anticipated but what was not anticipated was the extent of the shortfall. Having said that, not one of them said to me that they would be buying at these levels. My money is with them. If they are not buying, neither am I.
P.S. Wonder if Greenspan is reading the headlines? |
