Don't waste much time looking at
second-quarter earnings report. Sure, it was great, but the company pointed investors to the future, again raising revenue and earnings forecasts for the remainder of the year and next year.
"We are really bullish on these guys," said
PBHG Global Technology & Communications
fund manager Michael Ma, who owns Nortel. "It looks like all the big themes are playing out for them: the global demand for bandwidth and the need to build new optical networks."
Nortel had guided expectations up after the first quarter and, at the time, the company said reaching $10 billion in optical sales for the year was possible. Now, given the 85% increase in orders booked this quarter, surpassing that $10 billion figure will be a glide, the company said. (
wrote about the earnings earlier Tuesday.)
Nortel boosted its revenue growth forecasts for the rest of the year to 40%, an increase in the range of five to 10 percentage points over previous guidance. The company also said its expects that 2001 sales and earnings will increase by 30% to 35%.
So even though Nortel could stand to take a breather with its second-quarter 150% growth rate in optical-equipment sales and a nearly unthinkable
collapse of its closest rival
, don't count on seeing any signs of a strategic slowdown.
"I think we've been very diligent about assuring we don't fall in love with our current portfolio," said CEO John Roth in an interview after the conference call Tuesday evening. "The biggest threat to companies that become large is that they start to defend their position as opposed to attack their position."
In addition to its conventional customers, Nortel has made several inroads to the booming wireless-network buildup. Nortel said revenue from wireless-equipment sales is expected to increase dramatically next quarter as money starts to flow in from big contracts with
AT&T Wireless Group
and other wireless carriers.
And with the breakaway lead in sales of new high-capacity optical transport equipment known as 10-gigabit systems, Nortel is actually cutting its prices to make it even harder for competitors such as
and Lucent to crack into the market.
Price cutting helped narrow Nortel's overall margins for the quarter by 1.4 percentage points, one of the few downsides for the quarter. But Roth said that's a small sacrifice when you're trying to get in on the ground floor of a whole new generation of network creation.
"The only weapon our competitors have to play with is price," Roth said. "And for some companies who want to get in the business this is almost life or death, but we are not going to give ground," he added.
One threat to growth that Roth repeatedly addressed on the conference call was the consolidation of component suppliers, and the potential supply bottleneck that could create. The comments were a thinly veiled reference to the
proposed $41 billion merger between the two leading, independent laser-pump and optical-amplifier makers
Roth said this consolidation would mean fewer supply sources. "This has me concerned as to whether or not we will find as wide a range of parts from as many leading-edge vendors as we need," said Roth in the interview.
Some observers wondered whether his consolidation concerns were targeted less to breaking up the JDS Uniphase/SDL deal and more toward engendering some regulatory goodwill if Nortel goes ahead with its reported
. Under that deal, Nortel would sell its optical-component manufacturing business to Corning in exchange for 50% of Corning.
Roth declined to comment on possible deals with Corning, but said: "Corning is a great company and we have worked with Corning for many, many years on a whole range of things making sure our systems work well together and that's what we'll continue to do."
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