Research company is hopeful on long-term prospects for Nortel Networks

While Nortel Networks Corp. is being presented as the poster boy for the telecom slump, at least one research firm is optimistic of the equipment manufacturer’s long-term survival. Toronto-based Independent Equity Research Corp., operating under the name eResearch, says in a recently released report that despite Nortel’s troubles, it is still in a strong competitive position. "We have eschewed the normal practice of dwelling on the near-term outlook since there is only limited visibility for the next year or so," eResearch analyst Marcia Wisniewski writes. "We have concluded that despite the dire predictions of the daily press, Nortel should indeed survive." Wisniewski concedes that the company is unlikely to be earnings positive until Q4 of this year, and she doesn’t expect those numbers to be much better than breakeven. She adds the eResearch figures are more conservative than those of other forecasters "due to company-guided, overly optimistic revenues assumptions being used by the majority of analysts on the Street." She admits Nortel has been hurt, as have other manufacturers, by the decrease in telecom carriers’ capex spending (NL, Feb. 26/02). After years of wild spending, most telcos have settled back with capex in the range of 15 to 20 per cent of revenues. The analyst chides Nortel for its former methods of financial reporting, but praises changes it has made of late. This new system permits a better breakdown of where company revenues derive. "Nortel’s financial reporting leaves something to be desired in terms of granularity and consistency. A year ago, only two categories of customers were highlighted: (i) service providers and carriers, and (ii) enterprise," says eResearch, which provides information on small and large cap companies. "At the end of 2001, the company recategorized its target markets (and, therefore, its product revenues) into new categories." (See table). Nortel is very strong in its competitive positioning, Wisniewski states. It is number one in market share for Core ATM, IPSS, and Metro DWDM. It trails Lucent Technologies and Cisco Systems in Edge ATM and is in fourth place in SONET/SDH and LH DWDM. "Incumbency is a valuable part of Nortel’s franchise," she writes. She estimates Nortel has about 3,000 Class 5 switches throughout North America, while Lucent has about 3,500. "The telecom carriers rely on this equipment: it is their life blood," she notes. "It is clear that Nortel will continue to have a preferred supplier position with its considerable installed base of customers." Some industry observers believe the competitive market is changing, as interoperability between platforms from different manufacturers becomes more commonplace. Under this theory, telcos can buy from whomever they want and as a result they will base their decisions solely on price. Wisniewski discounts this notion. "There is nothing ‘plug ’n play’ about telecommunications gear, unless of course you are considering a single-vendor solution, and even then, ‘plug ’n play’ is questionable," she offers. "Even within the existing standards on new technology, each vendor manages to distinguish their solution from the rest by creating their version of the standard."

Research company is hopeful on long-term prospects for Nortel Networks

News | May 21, 2002

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Research company is hopeful on long-term prospects for Nortel Networks

News | May 21, 2002

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