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

To: bofp who wrote (13836)	5/1/2004 5:10:46 PM
From: Eric L	Read Replies (1) \| Respond to of 14638

2003 GAAP Earnings from discontinued operations ... << Based on the company's statement that 2003 GAAP earnings would be cut in half, and noting that half of 2003 GAAP earnings were from discontinued operations, essentially, Nortel made no profits from continuing operations in 2003. >> While many were cheering for Nortel's turnaround Mathew Ingram flagged that in an article for the Globe and Mail one year ago: >> Don't Cheer for Nortel Just Yet Mathew Ingram Globe and Mail Update April 24, 2003 globetechnology.com Let’s be clear about one thing: Nortel Networks deserves credit for what it has been able to achieve over the past year. It has managed to cut costs and reduce staff to the point where it is more or less breaking even on sharply lower sales. But let’s not get carried away because the company reported a profit in its latest quarter. For one thing, that “profit” is more nebulous than it appears. The telecom equipment company is also facing a mountain of debt and further sales declines, with no end in sight. A lot of the joy that Nortel has been producing lately -- including the applause that greeted CEO Frank Dunn when he came on stage at Nortel’s annual meeting in Ottawa, and the rise in the stock price to $3.79 from penny stock status -- seems to be driven by a feeling of relief. Relief that the former telecom superstar is not going to file for bankruptcy protection, as it seemed to be on the verge of doing at one point last year. What can’t be denied is that Mr. Dunn and his management team did a commendable job of avoiding that black hole, and have made good progress at skating the company back onside in terms of financial health. For more than a year now, Nortel has been involved in a race -– a race to cut costs as quickly or quicker than customers were cutting their orders, to get costs in line with sales. That race is now more or less over. It isn’t quite as over as Nortel’s profit makes it look, however. The company made a profit of $54-million (U.S.) or 1 cent a share, but that was largely a result of a $190-million profit it made on discontinued operations. You can bet if Nortel had lost a similar amount on a unit it had already put up for sale, the loss would have been downplayed as irrelevant to the company’s ongoing operations. So let’s leave that aside for now. On an operating basis -– the business that Nortel is counting on for the coming year -– the company lost $129-million. That looks a whole lot better than the $1.1-billion it lost in the same quarter the previous year, but it still means Nortel’s operations consumed money instead of producing it. After taxes and the effect of interest expenses, the company lost $136-million in the quarter compared with $841-million last year. The cost reductions that Nortel has made are definitely dramatic. Revenue fell by more than 17.5 per cent, while the cost of those sales dropped by more than 35 per cent. The company also has $4-billion in cash and cash equivalents on hand, which is a good thing, since its business continues to be a cash drain. However, Nortel also has more than $6.5-billion worth of current liabilities, plus more than $3.7-billion in debt. As far as the business goes, overall revenue fell by close to 18 per cent, which didn’t come as much of a surprise to analysts following the company -– in fact, some were surprised that it hadn’t fallen by more than that. One of the brighter spots was the wireline business, which involves wired telecom and network equipment. Sales in that unit fell 18 per cent over last year, but rose 11 per cent over the December quarter. That was the only bright spot, however. Wireless saw sales fall 16 per cent year over year and 6 per cent quarter over quarter; corporate sales fell 9 per cent over last year and 6 per cent over the previous quarter; optical sales dropped by 33 per cent over the same quarter last year and 22 per cent over the prior quarter. Sales in Canada were down 41 per cent year over year and down 11 per cent in the United States. Nortel did not give any profit or revenue targets for the coming quarters, apart from saying that it expects its customers to “continue to spend cautiously” and that capital spending levels for the second quarter will be similar to those in the first quarter. That may be an improvement from a few months ago, but it still leaves a lot to be desired if you’re looking for a growth stock rather than just a survival story. As Steve Kamman of CIBC World Markets said, “The question keeps going back to, now that we’ve got the balance sheet nailed down, what’s the long-term growth prospects? Where are we doing from here? We’re peering out into a very murky 6 months.” While losses have been stanched, Walter Casey of Banc One told Bloomberg, “There doesn’t seem to be a catalyst to get revenue growth moving. I’m pretty skeptical about some of the more optimistic views in the short term.” Even some of the more optimistic analysts expect Nortel to make a profit of about 8 cents a share this year and 10 cents next year. That’s not exactly a high-growth scenario –- and it’s hard to see how a profit of 10 cents a share justifies a share price of over $2.50. << - Eric -