As Nortel Networks CEO Bill Owens continues to tell investors and analysts the company - among other things - can be competitive with Asian rivals and emerge from its troubling accounting scandals, it is important to remember the realities of the market - things are are extremely tough out there for most suppliers. Nortel came clean with its struggles today when it said third-quarter sales will be lower than the second-quarter. The company is now looking for a single-digit revenue increase this year, while the overall market will grow faster than that - suggesting Nortel could be losing market share. Another telecom maker having its troubles is Ciena Corp. In a recent interview with Reuters, Ciena CEO Gary Smith said he does not expect to see a recovery any time soon."Our assumption is that the market will continue to be turbulent," he said. This is pretty blunt talk from a CEO who needs to reassure investors of his company's prospects. Even more evidence of the telecom industry's struggles came from Celestica Inc., which saw its stock pounded after disclosing that third-quarter revenue will be US$200-million to US$205-million below expectations. Celestica's customers include Cisco, Lucent and HP - making it an industry bellweather of sorts. Even sales in the much-hyped Internet telephony market have been less than impressive. According to consulting firm Dell'Oro, second-quarter sales of equipment such as softswitches and media gateways climbed just 3% from the first quarter.
So what's happening out there? It appears many carriers continue have continued to adopt a cautious approach to spending. At the same time, prices are under attack as low-cost suppliers such as China's Huawei battle for market share. More and more, the telecom equipment market looks like a sector in dire need of consolidation. Perhaps it won't be on the scale of Cisco buying Nortel, but there are too many players fighting for a shrinking piece of the pie.
Amid this environment, Nortel and Mr. Owens are waging an aggressive public relations campaign to win back the affections of investors, analysts, customers and suppliers. The company is attempting to spin a story of restitution, stability and confidence - and who better to deliver it than a former U.S. Admiral? The problem, however, is while Nortel attempts to make structural and strategic changes, the market is scuffling and shifting. If Nortel can't generate sales momentum, all of its PR efforts will be for naught.