UBS again trims 2001 estimate for Nortel
(UPDATE: Updates with details throughout, adds closing stock prices. All figures in U.S
dollars.)
OTTAWA, March 15 (Reuters) - UBS Warburg again cut its earnings estimate for Nortel
Network Corp. (Toronto:NT.TO - news) (NYSE:NT - news) on Thursday amid mounting
signs that the world's No. 1 supplier of telecommunications equipment is losing fiber-optic
equipment contracts to competitors' cheaper bids.
Analyst Nikos Theodosopoulos cut his 2001 Nortel earnings forecast to 45 cents from 50
cents per share, but maintained his revenue target at $34.7 billion and a stock target at $18.
The cut comes after optical network operator 360networks Inc. (Toronto:TSX.TO - news)
told UBS it had picked Fujitsu as its sole supplier for a European network. Nortel is
360networks' supplier for its North American network, UBS said.
That follows news that Lucent Technologies (NYSE:LU - news) won a contract with Verizon
(NYSE:VZ - news) for a European network over Nortel and that Marconi displaced Nortel
and is now the sole supplier for British Telecom's (quote from Yahoo! UK & Ireland: BT.L) optical
network.
``For the third time within a month, Nortel has lost a long haul optical network deployment
contract based on price,'' the report said.
``As a result of these market dynamics, we expect Nortel's margins to come under more
pressure as vendors such as Lucent, Alcatel, Marconi and Fujitsu continue to use aggressive
pricing to gain footholds in greenfield networks.''
UBS said Nortel's existing optical customers are also expected to receive extended payment
terms, which could further erode gross margins.
Uncertainly over Nortel's earnings could also further drive down the company's battered
stock, the report said.
Shares in Nortel, 80 percent off their year high, made moderate gains on a buoyant tech market
on Thursday. The stock rose 0.5 percent to end at $15.90 on the New York Stock Exchange and 0.9 percent to close at
C$24.90 in Toronto.
Nortel cut its 2001 earnings forecast by two-thirds to 10 percent growth and halved its revenue growth target to 15 percent in
mid-February. The company said it was also cutting 10,000 jobs, about 10 percent of its staff, amid a sharper than expected
U.S. economic downturn.
``Nortel is taking aggressive cost cutting actions to generate earnings in a year of little revenue growth,'' the report said. ``The
lack of revenue visibility and aggressive cost cutting measures makes predicting earnings for the year very difficult in our
view.''
Thursday's the estimate comes just three days after UBS trimmed its Nortel earnings estimates for 2002 to 70 cents from 80
cents per share and cut its stock target to $18 from $22.
In the week earlier, UBS had cut its estimates and target price for Nortel and Cisco Systems (NasdaqNM:CSCO - news)
amid signs that telecom equipment revenue growth in 2001 will fall below 10 percent.
($1 equals $1.56 Canadian)
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