NT article:
BLEEDING BUDGETS. To be fair, at least part of the blame for the company's troubles lies in the weak market. Nortel's customers could cut their capital spending by as much as 35% this year. If so, a grim 2001 could seem like a dream by comparison. ``[Customers] just aren't pulling the trigger,'' explains Todd Coupland, an analyst with CIBC World Markets. In fact, they're pulling back. On Feb. 14, broadband provider Qwest (NYSE:Q - news) chopped its 2002 capital spending by $300 million more, to $3.7 billion, half of the originally budgeted $7.5 billion. Earlier, Sprint (NYSE:FON - news) and WorldCom (NasdaqNM:WCOM) announced plans to cut their spending for the year.
More bad news could be coming. Qwest, which accounts for just under 10% of Nortel's revenues, is struggling. On Feb. 14, both Standard & Poor's and Fitch Ratings downgraded Qwest's $24.9 billion in debt, although the company managed to keep an investment-grade rating. Many carriers are financially hurting, and analysts expect massive consolidation in the next 12 months [see BW Online Special Report, ``Cell Phones at the Crossroads''].
That would further hurt Nortel and other gearmakers. In fact, demand for their products might not pick up again until mid-2003, according to RHK. Bernstein's Sagawa, who foretold the optical industry's meltdown, disagrees. He believes orders will ramp up -- to double-digit growth -- by the fourth quarter of this year.
PROFITS IN '03? Even so, Nortel will likely disappoint investors again this year. It probably won't break even in the fourth quarter as promised. Although the company has significantly cut its costs, its revenues would have to rise by $550 million a quarter to break even, says Alex Henderson, an analyst with Salomon Smith Barney.
Such sky-high growth is unlikely. In the fourth quarter of 2001, Nortel recorded $3.5 billion in pro-forma revenues and lost $720 million before taxes. In all probability, the company likely won't be profitable until the fourth quarter of 2003 -- or later, Henderson says. Nortel declined to comment.
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