Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Nortel Networks (NT) -- Ignore unavailable to you. Want to Upgrade?

To: FESHBACH_DISCIPLE who wrote (8071)	10/31/2000 8:07:23 PM
From: FESHBACH_DISCIPLE	Read Replies (1) \| Respond to of 14638

Sanford bernstein report and conclusion very good independent research boutique Nortel delivered 3Q EPS of $0.18, in line with our estimate and a penny ahead of consensus, on disappointing sales of $7.3B – a full $600M below our expectations. Optical sales were the primary culprit, down sequentially as customers slowed orders to deploy their own inventories of equipment stockpiled during 1H00. Furthermore, NT stated that they were gated by their ability to install and test customer networks – capping December optical sales growth to 20% sequentially in a quarter where NT normally delivers nearly 30% QoQ growth. Moreover, NT grew its days inventory on hand by 12 days, almost entirely in optical systems and components. We believe this overall situation is evidence of a down-cycle in carrier spending on optical systems that will affect every company in this sector. We are lowering our 2000 EPS estimate from $0.77 to $0.74, in line with consensus. Our 2001 estimate remains $0.94 vs. the $0.98 consensus, with lower tax rate and share count offsetting more pessimistic revenue expectations. We rate NT Market Perform. NT’s revenues were down 6.5% sequentially and 7.6% below our expectations. This was entirely due to a shortfall in optical revenue. NT reported that its customers began to deploy a stockpile of extra equipment ordered in the first half, quelling demand for new shipments. At the same time, NT’s own inventory of optical components and systems ballooned, adding 12 days to total inventory levels. NT’s ability to boost sales in future quarters will be limited by the tight availability of qualified installation technicians. As such it is sharply lowering its full year expectations for optical sales from $12B – reiterated only a month ago – to slightly more than $10B. Both inventories and receivables were up sharply. Inventory days on hand increased from 71 to 83 and DSOs increased from 81 to 91. We believe NT experienced an extremely back-end loaded quarter, a significant warning sign for 4Q. We believe this quarter’s results are consistent with our expectations for a sharp deceleration in carrier spending in 2001. Furthermore, we believe NT’s inability to anticipate this situation calls into question the clarity of its projections for future demand. We are reducing our revenue expectations for 4Q from $9.5B to $8.8B, a 34% YoY growth rate, and our EPS from $0.34 to $0.26, in line with consensus. While we are reducing our 2001 revenue projection from $41B to $39B, we are maintaining our 2001 estimates for $0.94 EPS (vs. $0.98), as an improved tax rate and slightly higher margins offset the revenue change.