No major surprises here, move along. Nortel’s posted a third-quarter loss of $99-million, or 2 cents a share – compared with expectations of a one cent profit. Not terribly off the mark but still a loss. Revenue, meanwhile, was $2.96-billion – slightly above expectations of $2.81-billion. For shareholders, perhaps the biggest news is a 10-for-1 share consolidation that will make the stock look like a real stock as opposed to quasi-penny stock. It will also shrink the number of outstanding shares from a gazillion to something that appears more reasonable. So what did CEO Mike Zafirovski think about the quarter? Here’s his quote from the press release.
“I am pleased with our overall revenue growth and, in particular, in our focus areas of next generation mobility, enterprise and related services, and metro optical. I am also pleased with the 270 basis points operating margin improvement versus the third quarter of 2005. However, we should and will be moving faster. Pricing pressures and the speed at which our revenues are shifting to next generation, early cycle products is increasing our challenge to drive profitability improvements. The management team and I are resolute in achieving a globally competitive cost structure and we are accelerating and enhancing our Business Transformation and Lean Six Sigma programs to close this gap and achieving double digit operating margins in 2008. I believe recent steps of establishing the Microsoft alliance, divesting our UMTS access business, and increasingly shifting resources to lower cost centers are indicative of our resolve.”
Update: Nortel’s gross margins fell to 38% in Q3 from 39% a year earlier. The decline was blamed on “pricing pressures and product mix”, which is far from encouraging and reflects the fierce competition to win contracts. Nortel’s cash balance is $2.6-billion compared with $1.9-billion in Q2. The increase came from a $2-billion credit facility, offset by the repayment of $1.3 billion one-year credit facility.
What’s everyone’s thoughts on the 10 for 1 share consolidation?
I understand that all things being equal the consolidation will have a neutral effect on net worth of someone’s holdings, but what risk exists that the consolidation will create more downward pressure on the stock?
Observer
The results of -.02 from an anticipated +.01 is disappointing but how much wporst would this be without money from recent revisions moved forward i wonder. Market reaction is understandible and the falling stock price was buffered to yesterday’s rally I suspect due to Nortel’s expressed optimism.
I am somewhat confused about their increased cash balance of 2.6B from 1.9B though.
Even deducting shareholer’s cash portion of settlement of over half a billion dollars ($575M) from $2.6B, this reflects somewhat of stable cash balance. Is any Flextronics or UMTS money accounting for this? We are anticipating a $1.6B cash balance by year end according to National Bank analyst Tom Astle’s commentary in May. If this was any form of good news, we can be sure it would have been announced. Are there any other items to be concerned with in Q4 aside from the shareholder settlement?
Mind you Nortel warns they made no provisions for penalty or regulatory/government fines that have yet to be announced that I suspect must be taken from cash. I can not see them printing more paper to pay these after diluting 14.5% of the company and already printing this $2 billion in bonds with another $1.8B to address in 2008 they can’t collateralize.
Lastly, we finally have a date for a reverse split, December. This move is to draw institutional investment Nortel says but institutions require a few successful quarters plus SEC approval for those not once bitten to jump back in, so I am also somewhat confused about such an absurd statement.
A reverse split tanks a stock 75% of the time, let alone in Nortel’s case, where shorting interst will also drive the stock down in light of it’s financial performance and deteriorating fundaments/outlook. So I am not sure why they would want one short of keeoing a value a bove a dollar to remain listed. Will Q4 be that bad?
All this clearly shows they are by far from out of the woods and remain in deep trouble as they also have criminal investigation results and derivative class actions to deal with aside from remaining challenged in business.
What’s an SEC Approval??
I’ve searched all over the SEC website looking for a formal SEC Approval document and how they have issued them in the past. I can’t find anything related to your statement. Will you kindly supply the readers here a link to validate this claim you are making? Thank you.
Observer
“SEC approval” as in reliable numbers submitted to the SEC through their formal and signed financial statements. Nortel does not have this. SEC approval is a term reiterated on Report on Business Television (ROB-TV). Investors generally know what this means.
As a matter of fact, we anticipate enormous SEC fines for one of the largest payouts to settle matters of alleged fraud, one where Currie admitted they were at the plaintiff’s becon call to settle and one where the shares settlement was reduced due to their own actions of revisions, creditors increasing collateralizatiom, and their claiming “no guarantees” in more revisions that always seem to overstate than understate error with or wothout intent as criminal results and derivative actions loom.
Nortel has only worsened the matter with SEC approval in its dramatic revisions now adding “no guarantees”.
To furnish reliable numbers they need credible internal controls. They extending repair of controls from months they claimed well over a year ago to years out now, 2008 Currie said, to when $1.8B is coincidentally due that they can’t cash collateralize as they did with increasingly antsy creditors in the past they printed billions in B3 high risk /. high interst bonds to further add to their negative cah flow. Since issuing these bonds, future bond applications now require pension liabilities to be listed than just mere footnotes… if you get the drift.
No SEC approva means no institutional interest, a simple concept really. Also reiterated by investors and instiutions alike where they simply won’t invest in a company where they “simply can not trust their numbers”, let alone those already once bitten to jump back in with any appetite short of avoiding Nortel like the plague I should imagine, like so many others have done since BT, Force 10, Sprint, Huawei, Telstra, BSNL, etc., it is endless…
sharesneedviagara
1:10 share consolidation will mean $22 but likey will slide to $12-15 range. (meaning 1.20-1.50 in non consolidated). I think its part of making it attractive to take Nortel private, scale down and bring it back to profitability. The writing is pretty much on the wall.
Nortel Posts Q3 Loss
No major surprises here, move along. Nortel’s posted a third-quarter loss of $99-million, or 2 cents a share – compared with expectations of a one cent profit. Not terribly off the mark but still a loss. Revenue, meanwhile, was $2.96-billion – slightly above expectations of $2.81-billion. For shareholders, perhaps the biggest news is a 10-for-1 share consolidation that will make the stock look like a real stock as opposed to quasi-penny stock. It will also shrink the number of outstanding shares from a gazillion to something that appears more reasonable. So what did CEO Mike Zafirovski think about the quarter? Here’s his quote from the press release.
“I am pleased with our overall revenue growth and, in particular, in our focus areas of next generation mobility, enterprise and related services, and metro optical. I am also pleased with the 270 basis points operating margin improvement versus the third quarter of 2005. However, we should and will be moving faster. Pricing pressures and the speed at which our revenues are shifting to next generation, early cycle products is increasing our challenge to drive profitability improvements. The management team and I are resolute in achieving a globally competitive cost structure and we are accelerating and enhancing our Business Transformation and Lean Six Sigma programs to close this gap and achieving double digit operating margins in 2008. I believe recent steps of establishing the Microsoft alliance, divesting our UMTS access business, and increasingly shifting resources to lower cost centers are indicative of our resolve.”
Update: Nortel’s gross margins fell to 38% in Q3 from 39% a year earlier. The decline was blamed on “pricing pressures and product mix”, which is far from encouraging and reflects the fierce competition to win contracts. Nortel’s cash balance is $2.6-billion compared with $1.9-billion in Q2. The increase came from a $2-billion credit facility, offset by the repayment of $1.3 billion one-year credit facility.
Tags: Nortel, Telecom, Mike Zafirovski