Toronto - Nortel stock gets hammered as rumours swirl
Tuesday, September 29, 1998
TORONTO (CP) -- Trading in shares of Northern Telecom Ltd. was halted Tuesday
on the Toronto stock market after a sudden wave of panic selling hacked 12 per cent
off the high-tech company's stock price.
Investors started dumping shares after conflicting rumours poured out of New York
where Nortel executives were attending an annual conference for industry analysts.
When a company executive seemed to suggest to the audience that Nortel's
third-quarter profits might be smaller than originally expected, a sudden sense of dread
spread through the conference hall.
"As he was speaking, half the room walked out and headed to cell phones, pay
phones and carrier pigeons," said Paul Holman, vice-president at Dominion Bond
Rating Service in Toronto.
"There seemed to be some confusion over what he actually said. In the meantime, the
stock dropped. . . and the TSE reacted and put a halt on it."
The stock did not trade on the TSE for the rest of the day.
Nortel later issued a terse statement insisting its profit forecasts were in line with what
most analysts had previously predicted.
"Nortel Networks confirmed that it expects earnings per share for the third quarter
and total year 1998 will be in line with consensus," the statement said.
"The revenue growth Nortel expects in the third quarter will be in the low double
digits."
Chief executive John Roth later confirmed that Nortel's revenues were expected to
shrink from "high double digits" to "low double digits," but he stressed that the
company's profits would remain solid this year and next year.
He said some analysts at the conference were wrong to suggest Nortel's profit margin
would be hurt.
"I've seen that quoted by a couple people, which is not what we said," Roth said in a
telephone interview from New York. "Maybe they left the room before we finished
our talk."
Indeed, Holman confirmed that Nortel's chief financial officer, Wes Scott, had tried
to explain that even though third-quarter revenue might slip a little, the final earnings
results wouldn't fall outsides analysts' range of expectations.
"There wasn't any intention of showing a smoking gun," Holman said. "The intention
wasn't to deliver a shocker message."
Still, the company's stock dropped $7.40 to $54.20 before trading was halted just
before 1 p.m. EDT.
The problem is that investors remain extremely nervous about the prospects for large,
high-tech firms like Nortel, which are volatile investments at the best of times.
There is widespread concern that North America's high-tech industry stands to lose
the most from the recent economic turmoil in Asia, so any hint of lower profits is
enough to spark panic.
Indeed, Roth said Nortel's revenues would shrink mainly because of slack demand in
Asia.
Nortel, based in Brampton, Ont., is one of the world's largest makers of
telecommunications equipment. The company's fortunes are considered a bellwether
for Canada's entire high-tech industry.
That means when Nortel's stock drops, the entire Toronto stock exchange usually
feels the pain.
By the close of the trading day, the industrial products sector, which includes Nortel,
had shed 4.72 per cent. That was the worst performance among the 14 stock groups.
Despite a cut in U.S. and Canadian interest rates, the TSE 300 composite index lost
107.18 points Tuesday to close at 5,762.10.
Earlier, Roth said he expected good growth as a result of his company's recent
$9.1-billion acquisition of California's Bay Networks.
The merger, which closed Aug. 31, is aimed at improving Nortel's position in the
rapidly expanding market for high-speed data networks and Internet products and
services.
Nortel had 1997 revenues of $15.5 billion US and Bay Networks had revenues of
$2.4 billion US during its most recent fiscal year. The combined workforce of the two
companies totals 80,000 employees worldwide. |
