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UBS: The Future Ain’t Bright
By Mark Evans | April 8, 2008
Citing lower enterprise sales growth, UBS has reduced its 2008 to 2010 revenue and EPS expectations for Nortel, while dropping its stock target price to $8.80 from $11.
“We now model Enterprise segment revenue growth of 4% for 2008-2010, down from 5% previously,” UBS analyst Nikos Theodosopoulos said in a research note. “We believe an overall challenging environment in IT spending is likely to impact Nortel’s Enterprise segment, though exact magnitude of impact remains unknown.”
A far more damning comment, however, was Theodosopoulos’ contention that UBS remains “unconvinced that Nortel’s current broad-based strategy of servicing Enterprise and Service provider customers, across wireline and wireless segments, is indeed the best strategy for the company. We believe in order to succeed Nortel needs to be focused on those areas where it can be a meaningful contender, which in our opinion are likely Enterprise and Optical.”
It may be a quiet roar right now but there seems to be increasing questions about Nortel’s strategic direction within the analyst community. After more than two and a half years of Mike Zafirovski at the helm, impatience appears to be setting in.
The question that must be asked is whether Nortel’s situation would be any different if different directions would have been taken other than cutting costs and refreshing the senior management team.
If you were Mike Z., what would you have done differently?
More: UBS’ EPS estimates for 2008 and 2009 are $0.34 and $0.5, respectively, down from $0.36 and $0.60, with operating margins of 6.4% in 2009, down from 6.7%. It now estimates revenue growth of 0.9% and 1.1% in 2008 and 2009, compared with 1.3% and 1.5%.
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