A View on View :: Nortel's Q3: Higher Sales

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Nortel's Q3: Higher Sales

by Mark Evans on Wed 02 Nov 2005 08:15 AM EST | Permanent Link

Has Nortel's outgoing CEO Bill Owens set the stage for Mike Zafirovski to become a hero (and become quite wealthy in the process)? Nortel's third-quarter results show across-the-board strength, highlighted by strong wireless sales. Could this suggest Nortel is poised for a rebound now its accounting and financial troubles have mostly been addressed? Before anyone gets too carried away with a single quarter's performance, take a deep breath, step back and get a lay of the telecom landscape. Nortel still has huge challenges ahead, ranging from unfocused R&D to competition from low-cost suppliers to outstanding class-action lawsuits and a $1.275 billion debt refinancing in February. Zafirovski, who was cleared to become CEO earlier this week after he agreed to give back a $11.5 million to his former employer, Motorola, has already hinted there are more cost reductions on the way. It could be that Mike Z. will be able to pull off another turnaround story but it is going to be a huge uphill journey for a company that still has all kinds challenges/problems. It appears, by the way, that Mike Z. is already onboard unofficially given he participated in today's analyst call where he outlined his six priorities, which include a "clear strategic focus" and "profitable growth". Another thing Mike Z. may want to focus on is not getting into money-losing contracts just to penetrate a new market. The $500-million wireless deal Nortel signed with BSNL has led to losses of nearly $300-million. In hindsight, this deal could be Bill Owens' biggest strategic mistake, while only time will tell if the acquisition of PEC and the joint venture in South Korea work out.

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Re: Nortel's Q3: Higher Sales

by Jamez4all on Wed 02 Nov 2005 07:27 PM EST | Profile | Permanent Link

I think the optimism over last quarter is misleading considering they had a 6 cent loss largely attributed to their money losing BSNL gamble comparitive to Q304. Taking this out would show year after year loses are ongoing and not as rosey as they are painted out to be.

The street expected 2 cents and they came in at minus 2...

The areas we saw increase remind me of a hot dog stand that gives hotdogs away for free to increases traffic and be seen doing something, anything, in desperation, when all it is going is losing money. Seen doing "seemingly good business" helped tham last time before this mammoth fraud came to light.

Cash is still declining from $3.06B to 3.0 (if it is that exact to alleviate showing say 2.99) and the loss of 105Million is not good news. Who knows how much they dilluted 100M shares are shown for the last few updates.

The main issue remains that they can burn cash a lot faster than they can earn it.

In light of this and their endless woes which I feel strongly some are insurmountable, an analyst more realistically downgrading the stock:

Nortel Networks (NT ): Cuts to 2 STARS (sell) from 3 STARS (hold)
Analyst: Kenneth Leon, CPA

Third quarter results of breakeven vs. 6 cents loss, before special items, is 3 cents below our estimate. A 7% sales decline quarter over quarter is due to a sharp drop in wireless network demand, in our view. While Nortel sees 13% sales growth for 2005, we forecast 4% to 7% growth in 2006 and 2007. We are less than optimistic that Nortel will regain wireless sales growth; thus, we see more pressure on its fixed-line unit. We are lowering our 2005 earnings per share estimate to 6 cents from 8 cents but maintaining our 2006 estimate of 15 cents. With concerns about a weak first half 2006, we are lowering our 12-month target price to $3 from $3.50

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