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Technology Stocks : SDLI - JDSU transition -- Ignore unavailable to you. Want to Upgrade?

To: pat mudge who wrote (220)	2/16/2001 3:22:33 PM
From: k_maxwell	Read Replies (1) \| Respond to of 3294

<<<<<The whole networking group is being shot with this Nortel news, yet interestingly enough if one reads Nortel's words, their problem is in SONET and with legacy based Telcos, not the all-optical area. Thus the opportunity I see that the market does not by not distinguishing between optical and SONET based companies.>>>>> Which is actually what Gilder has been saying for years: SONET is ultimately doomed; CSCO and its routers, as well as the "copper cages" of the old telco establishment will be supplanted by the all-optical network, piece by piece, from the edge inward.

To: pat mudge who wrote (220)	2/16/2001 3:41:33 PM
From: Tulvio Durand	Read Replies (1) \| Respond to of 3294

... Companies like LU, NT, and CSCO will succeed in direct correlation to their agility in moving from legacy products to all-optical. I still believe NT is better positioned than the other two. Pat, I am surprised you rate NT higher than CSCO in this comparison. I thought legacy products belonged primarily to LU and NT. CSCO's business is too new to have much in the way of legacy products. Please explain. Also today's market is indicating otherwise as NT and all-optical JDSU are down 30 and 20%, respectively, v. 7% down for CSCO. Thanks. Tulvio

To: pat mudge who wrote (220)	2/16/2001 3:57:21 PM
From: Jack Hartmann	Respond to of 3294

Pat, the SSB note on NT, pulled a favor to get it. SSB was critical on NT CC last night. Nortel Networks Corp. (NT) NT: Preannouncement-New Guidance Still Too High-But 1H (Buy, High Risk) NT Likely Hitting Trough Va Mkt Cap: $91,191.3 mil. February 16, 2001 SUMMARY * Nortel sharply cuts its outlook for 1Q and full year TELECOMMUNICATIONS with Nortel guidance of a $0.04 loss for 1Q and full EQUIPMENT year at roughly $0.80 per share. B. Alexander * Cutting 2001 estimates to $0.68 per share compared to Henderson official management guidance of $0.80 per share. Reducing price target to $50. * Management indicates market growth slowed sharply and Timothy Anderson they now expect 10% industry wide down from a prior expectation of 20% plus. * Management states metro optical growth continues Daryl Armstrong strong and long haul optical slows to 20% plus from closer to 40%. * Nortel to cut 10,000 from headcount with 6,000 going this quarter, we estimate this benefit at $1 billion on a annualized basis pretax or a roughly $0.15 benefit during 2001 and another $0.05 in 2002. * Maintaining Buy, we are at a trough in the economy and this is the time to set up not the time to back away, but the overly aggressive guidance is an issue. FUNDAMENTALS P/E (12/01E) 43.5x P/E (12/02E) 26.9x TEV/EBITDA (12/01E) 24.9x TEV/EBITDA (12/02E) 14.6x Book Value/Share (12/01E) $7.24 Price/Book Value 4.1x Dividend/Yield (12/01E) $0.00/0.0% Revenue (12/01E) $34,617.0 mil. Proj. Long-Term EPS Growth 30% ROE (12/01E) NA Long-Term Debt to Capital(a) 11.1% NT is in the S&P 500(R) Index. (a) Data as of most recent quarter SHARE DATA RECOMMENDATION Price (2/14/01) $29.55 Current Rating 1H 52-Week Range $83.88-$29.55 Prior Rating 1H Shares Outstanding(a) 3,086.0 mil. Current Target Price $50.00 Convertible No Previous Target Price $60.00 EARNINGS PER SHARE FY ends 1Q 2Q 3Q 4Q Full Year 12/00A Actual $0.12A $0.18A $0.18A $0.26A $0.74A 12/01E Current ($0.04)E $0.15E $0.22E $0.34E $0.68E Previous $0.16E $0.23E $0.24E $0.34E $0.98E 12/02E Current $0.18E $0.24E $0.26E $0.42E $1.10E Previous $0.24E $0.29E $0.30E $0.41E $1.25E 12/03E Current NA NA NA NA NA Previous NA NA NA NA NA First Call Consensus EPS: 12/01E $0.96; 12/02E $1.21; 12/03E NA NORTEL PREANNOUNCES AND LOWERS GUIDANCE After the Cisco prerelease, we started working on cutting estimates on a number of companies including Nortel. We moved too slowly. We thought we had enough time to methodically talk to each of the companies and revisit the models. Cisco indicated business fell off dramatically in January. We figured most of the companies which reported early in January such as Extreme and Foundry had probably set the bar too high. We also figured this would be the case with Nortel. However, we didn't expect such a swift adjustment in Nortel's guidance. As a result they have forced our hand a little sooner than we had expected. We are cutting our estimates on Nortel with this write up, and we are also posting a separate industry note which is addressing the estimates, target prices and rating on the other companies in our coverage. Management Expects A $0.04 Loss In CY 1Q on flat revenues--But We Strongly Believe This Is The Time To Be Looking Hard And Buying NT Shares. Nortel's management indicated they expect 1Q results to come in at a loss of $0.04 per share compared to our prior forecast of $0.16 per share. Revenues for the quarter are expected to come in flat at $6.3 billion down from our prior estimate of $8.1 billion. This quarterly earnings reduction alone takes $0.20 per share out of the estimates. With these estimate cuts, we think Nortel has finally discounted all of the bad news. We think the stock will hit its cyclical lows either today or over the next week.. We made this same argument with Cisco last week. We believe we are at the troughing period in the economic cycle. Over the next two or three quarters, the economic slowdown will likely be played out. But stocks have already discounted this event. Long before the economic conditions improve, we expect stocks to start to move higher. We think this is the time to buy the best in class names. * Sharp Decline In U.S. Sales Offset By Strong International Results. Management stated they expected 1Q industry wide sales to be off at least 20% in the United States with robust international results offsetting the sharp decline in domestic sales. * Optical Sales Expected To Slow With Strong Metro And Sharply Slowing Long Haul. Management indicated it expects its optical business to slow despite continuing robust metro growth. Management indicated they expected metro revenues to grow at a strong 40%-50% pace with no meaningful slowdown in the cards. However, the bulk of the revenues is in the long haul segment and here they expect revenues to slow to the 20% level from prior expectations of 35%-40%. * Central Office Switching Also Bearing The Brunt. Management didn't offer any quantification of the weakness in CO switching, but it was singled out as an area slowing sharply. We think its eroded from the up 5%-10% vicinity last quarter to the down 10%-15% vicinity this quarter. ATM sales appear to be holding up well but have also slowed some what. Management Guidance For Full Year Estimates Looks Too High Still-- Restructuring Benefits Seen As Offsetting Revenue Shortfall. Nortel is cutting 10,000 positions from its payrolls. They believe they will have cut roughly 6,000 by the end of this quarter and 4,000 more in the first part of CY 2Q. At roughly $100,000 per position, this represents a $1 billion cost savings. We estimate this as worth roughly $0.20 per share after tax on a full year basis with roughly 3/4s of the benefits falling in 2001 and the remainder in 2002. Management believes this will offset all but the current quarter's down turn. We think this is too aggressive. We are forecasting an $0.08 reduction in our 2Q estimate from $0.23 per share to $0.15 per share. We expect revenues to increase roughly 7.5% year-over-year. But with the lowered revenues we think the operating margins will also remain under pressure even with the cost cutting. Its very difficult to fully offset a significant revenue slowdown with head count reductions in such a short period. In 2H management believes its cost cutting will be leveraged by rebounding growth yielding higher than previously forecasted 4Q results. We think this is aggressive. * Management expects gross margins to hold relatively steady compared to prior estimates in the 2Q-4Q periods. We have lowered GMs slightly to reflect the lower volumes and the parts squeeze. * Management is forecasting Selling And Marketing expenses at 17.5%-18.0%. We are more conservative with our model carrying 19.3%. * Management is targeting R&D spending at 12.0%-12.5%. We are more conservative with R&D at 13.8% of sales. Management Believes Service Providers Will Delay Orders And Push Their Networks To Utilize Existing Capacity Even At The Risk Of Running Out. Due to the tight financing conditions, management thinks service providers may push much harder on the existing capacity in their networks rather than deploy new equipment or fiber. This assumption under pins the bulk of management's guidance change. They see significant push outs. However, they see no slacking of end market demand for services and they strongly believe this will force the service providers back to the ordering table by the second half as the volume grows rapidly and stresses the existing capacity. Based on the lowered earnings estimates and impaired visibility we are trimming our price target to $50 from $60. Our new target reflects 75 times 2001 estimates and 45 times 2002 estimates. We think these shares can trade at 2-2.5 times our estimate of their sustainable growth of 25%-35% implying a value of 60-75 times forward earnings at the peak of an economic expansion. COMPANY DESCRIPTION Nortel Networks is a leading global supplier of data and telephony network solutions and services. Its business consists of the design, development, manufacture, marketing, sale, financing, installation, servicing, and support of data and telephony networks for carrier and enterprise customers. Nortel has a particularly strong position in optical networking. Customers include public and private institutions; local, long-distance, personal communications services, and cellular mobile communications companies; cable television companies; Internet service providers; and utilities.

To: pat mudge who wrote (220)	2/16/2001 10:17:56 PM
From: sirdar	Respond to of 3294

pat... d'acorde please correct my french s.v.p.... s