Having watched this NN forum with a vested interest over the past year
I wanted to offer a few opinions.
First, the UB acquisition was/is a debacle. The analysts (that some people think are never right)said that UB was a loser and that management would just be distracted. Right on both counts as admitted by NN. Loss, 100 million investment and LAN customer and market goodwill.
Second, NN had a great business in older, high profit technologies in developing countries. This business was a surprising success up until the Asian flu and the ever increasing need for advancement in communications even in Sao Paulo. We as investors must watch and see if NN is able to convert these customers to next generation technologies profitably. This leads me to the third observation....
Cisco Flu. Yes you heard it here first. More important to NN over time is whether competitors can cut into the technology transition decisions that NN customers are making today (as discussed by TM and PC on the latest conference call). Anybody competing with Cisco will have their growth and profits reduced in that environment just like an Asian recession. It won't put you out of business if your in the top three but your growth rate will be slowed because Cisco will win more that their fair share.
Profitability. My uneducated analysis of the numbers says that the 36170 is not very profitable, if at all. If they had high margins here and big wins with market share we should double up our holdings, but I fear the profits are in tdm and frame and not in the ATM business we all believe in.
Everyhting I have learned about NN indicates that TM won't sell the company but...Siemans needs them to be successful and is the bell weather customer. This relationship along with 3Com bears watching.
Lastly, NN is in the perfect market. TM is right about ATM and infrastructure change outs along with carrier need's to upgrade and differentiate themselves with new services. So...long term if NN gets its management refocused (reorg'd and thinned out), they will grow with the market which should make them one of a number of companies rising with the tide but, their recent problems indicate that they will not be able to dominate, or outgrow, the market for WAN services in carrier & corporate markets. (The LAN foray is a failure already thus its unlikely to provide new areas of significant revenue or profits).
It will be interesting to see if NN would attempt to bring out a slightly higher earnings number next week. Or do they clear all bad news this quarter and show a lower than prelim number. Both are bad ideas. They should report as close to prelims to build some credability in otherwise shaky investor/analyst's view of the company's management.
Again, just my opinions.
Mark |
