From the Globe -
Roth sees year of woes for sector
By DAVID PARKINSON AND SIMON TUCK
Saturday, September 8, 2001 – Print Edition,
Page B1
CALGARY and OTTAWA -- The global
telecommunications equipment market could be a year away from turning
around, and things could still get worse before they get better, Nortel
Networks Corp. president and chief executive officer John Roth told a
forum of high-powered executives in Calgary yesterday.
Mr. Roth, who was the keynote speaker at the annual Spruce Meadows
Round Table, also made comments after his speech that threw cold water on
prospects for Nortel to get involved in merger talks with any other struggling
telecom equipment makers.
In some of his most pessimistic statements to date, Mr. Roth said during his
speech that there's no clear indication when Nortel's customers will start to
pick up their spending, which has been sharply curtailed as the sector has seen
its access to capital markets all but disappear this year.
"When will the spending recover? In reality, nobody knows. It's going to stay
this way for a while. It may even drift a little lower," he said.
"We've got at least 12 months of drought ahead of us," he added during a
question-and-answer session following his speech.
Just seven weeks ago Mr. Roth told The Globe and Mail that he was "as
confident as you can be in this market" that the company and the telecom
sector had hit bottom.
In response to a question from former Alberta premier Peter Lougheed after
the speech, Mr. Roth expressed doubts that spending in the sector would ever
recover to the levels seen in 2000, when capital markets provided $720-billion
(U.S.) worldwide to the industry, or even 1999, when the total was
$409-billion.
"It'll be a while before the world gives $720-billion a year to my customers," he
said. "Last year was abnormal. The year before that was probably somewhat
abnormal."
On the other hand, Mr. Roth said, this year's capital spending has been
abnormally low. "I think what we have to do is recalibrate what is normal."
Michael Urlocker, a UBS Warburg Inc. technology analyst in Toronto, said
he's not surprised by Mr. Roth's comments. UBS cut its price target for Nortel
and a host of other telecommunications equipment makers earlier this week,
placing much of the blame on the continuing capital spending slump by phone
companies and other telecommunications service providers in the lucrative
U.S. market.
After the round table's morning session, Mr. Roth said he doubts there are any
takeovers or mergers in the cards in the industry over the near term, given the
weakness gripping all companies in the sector. Nortel's stock rose yesterday
thanks in part to recent speculation that it might be a takeover target.
"Everybody's pretty well in the same state right now. I don't think there's
much appetite out there," Mr. Roth said.
He added that he isn't interested in entertaining takeover or merger proposals
from any of Nortel's competitors.
"I'm not open [to merger discussions]," he said. "I think combining two
companies of our size, especially when everybody's laying off people, just
makes life very, very difficult, for both sides."
During the round table session, Mr. Roth acknowledged that the company is
still trying to match its spending with its sales.
"Let's not get hung up on size," he said. "The task is to make sure we're
profitable at whatever size revenue."
He said Nortel is "actually ahead of schedule" in scaling down its operations to
match revenue expectations.
Nortel has already announced the elimination of 30,000 jobs so far this year, or
about one-third of its work force. The Brampton, Ont.-based giant has also
reduced its product line, chopped research and development costs and is in the
process of vacating 248 office properties.
Mr. Urlocker said he believes the company is already in the process of cutting
additional jobs. "We think job cuts are happening in light of the redesigned
capital spending and what looks like reduced demand for Nortel products."
But a Nortel manager in Ottawa said yesterday that the company hasn't yet
met its quota of 30,000 cuts. The official, who asked not to be identified,
however, said the company has made it clear that more cuts will be necessary
if sales don't pick up.
"I think the word internally is that we're going to right-size," he said. "If the top
line or bottom line is not there, the company will take action to fix it."
Walter Schroeder, president of Dominion Bond Rating Service Ltd., praised
Mr. Roth during the question-and-answer session for bringing Nortel's
so-called "burn rate" -- the rate at which it goes through its available cash
reserves -- under control through cost cutting and a recent debt financing. Mr.
Roth called the success of Nortel's recent $1-billion debt offering "a vote of
confidence" from the investment community.
After the session, Mr. Schroeder called the successful debt issue a "massive"
accomplishment for Nortel.
"They've bought time now. The question is, how deep is the cycle going to go,
and how long." |
