(Disclaimer: Any attempt to quickly assess Nortel’s results are always tricky given the company’s approach to reporting its financials. Sometimes, what you see, isn’t always what you get.)
A first-quarter loss of $138-million will attract the attention of many people but there may be signs that Nortel is headed towards terra firma.
Stripping away a number of extraordinary items, Nortel said its had a loss of 7 cents a share in Q1 compared with analysts’ estimates of 12 cents. Sales, meanwhile, were ahead of forecasts – coming in at $2.76-billion vs. $2.51-billion due to a big contract from its LG joint venture that came in a quarter ahead of schedule. (The Q1 results can be found here.)
“They delivered what they said they would deliver in the first quarter, and that’s a step in the right direction,” Morgan Stanley analyst Scott Coleman told Bloomberg.
Nortel CEO Mike Zafirovski said:
“We expect to achieve our full year guidance and we continue to make solid progress against the strategy to turn around the company. Our relentless focus on execution and our determination to deliver value to customers is strengthening the foundation upon which to build our performance over the balance of 2008 and beyond.”
More analysis and thoughts later but here are some of the highlights that Nortel offered up:
- Revenue in the first quarter of $2.76 billion, up by 11 percent year over year, which included a release of deferred revenue associated with the completion of a significant contract in the LG-Nortel joint venture that was previously expected to occur in the second quarter.
- Gross margin of 41.6%, up 120 basis points year over year.
- Operating margin in the first quarter of 4.7%, up 512 basis points year over year.
- Cash balance, as at March 31, 2008 of $3.22 billion, included a seasonal outflow of cash from operations in the quarter of $260 million, in-line with the 2008 target.
Update: In early trading, Nortel shares were up 2.3%, or 20 cents, to $8.91. For more insight, check out Fortune and The Street. For extensive coverage of Nortel’s results, check out the Ottawa Citizen.
Deferred revenue is distorting the picture at Nortel and other companies. Sarbox has ridiculously conservative rules that may force revenue to be held and not reported for many quarters. You must dot all i's and cross all t's in your delivery before you can recognize revenue ie you must prove that the customer has no recourse to demand its money back. It is impossible to know if the LG revenue occurred recently or years ago.
no there any more
I'm surprised the LG JV survives. Wasn't it originally conceived to drive co-development of UMTS/3G access; and to allow for interworking with LG's core? With UMTS being jettisoned to ALU, is most of this revenue enterprise (with a bit of CVOIP and Optical sprinkled in), or are UMTS orders perhaps flowing through Nortel books on their way to ALU??
Nortel watcher
I wonder what incentive Nortel gave LG to place their order early? I'm guessing margin was sacrificed in return for a stronger than actual Q1 and the pressure is now on Sales to replace that "accelerated" revenue with other business.
Novice Investor
Most of the Nortel analyst are "reverse indicators" anyway !
Buy recommendation and the stock sewers.
Sell recommendation and the stock flies.
GO NEGATIVE ANALYST !!
ex-nortel
The release of deferred revenue from the LG-Nortel JV in Q1 should lead to some uncertainty about Nortel's prospects for Q2 and Q3. Nortel has to break out this number from its Q1 sales numbers so that all interested parties can have a better look at Nortel's ongoing operations. And of course, management then has to explain how it plans to make up the loss of this deferred revenue in Q2.
A cynical person might wonder if Nortel's management was just continuing the company's devious pattern of moving sales revenues around between quarters by changing its guidelines on revenue recognition - sometimes illegally.
Onlooker
Shares are now down over 4%. The problem is these one time charges Nortel keeps taking aren't really one time charges - they are recurring every year. There are constant layoffs and outsourcings every year which keep costing the company money and an accounting game Nortel and other large companies like to play in order to pretend they are meeting expectations. Governments are complicit in this behavior because they pass laws which allow large corporations to get away with this. At some point, North America's standard of living will look more like Asia as the world flattens.
Metal_Stormer
If Nortel meets its 2008 /2009 targets the stock has a big upside to it - guidance is 0.61 c for 2008 and 92 c for 2009 - thats a 262 million profit for 2008 and a 406 million profit for 2009.
Me
Put as much spin on things, but the company is still losing money.
inalmm
I am wondering to see the comment of Analyst Mark Sue who issued a sell with a target price of $7, whereas now the stock is currently trading at +$9. Moderator, could you please post if you come across.
Apple
= inalmm I am wondering to see the comment of Analyst Mark Sue who issued a sell with a target price of $7, whereas now the stock is currently trading at +$9. Moderator, could you please post if you come across. -------------------- re inalmm you posted it 3 months ago... you tried to bash Mark Sue about his 12 months NT target of $7 What can you say today when NT is trading at all time lowest levels? around $6... Can you come back here and admit, you did not understand market and NT stock but Mark Sue target was better than perfect? and all the idiots supporting you in this chat room. They hype NT stock no matter what and bash investors who know that NT stock is going under! We know who the bullies are. Q2 2008 report uncovered sharp orders’ decline and unusual deferred revenues recognition to cover up losing customers. Nortel is going to use $1 bill in def rev in 2008! I know for sure /statistics/ that declined orders in Q2 2008 translate to 3 biggest customers lost /speculation/ In other words Nortel lost 3 biggest customers in Q2 2008 or the size of orders equal to 3 biggest customers. /for purpose of my speculations both statement are the same/ Inalmm, come out of the closet and admit you were just wrong about Mark Sue, same as Broadbandbill did about Duncan Stewart He apologized for that. His apology has been accepted. I defended Duncan St right away. http://www.allaboutnortel.com/2008/08/09/stewar...
Now I fight for Mark Sue
The Psychiatrist
Mark Sue is nothing to worry about- just look at his ability to judge the industry-during the steady decline from the Feb/07 high of $32,he changed his price targets 8 times in a 12 month period.
Wow talk about an astute analyst!lol
I'm sure he'll find something negative to report about Nortel's q1 results,as his firm will need to do something in order to cover the remainder of their short position in Nortel.
Nortel’s Q1 Results: Not Too Shabby
(Disclaimer: Any attempt to quickly assess Nortel’s results are always tricky given the company’s approach to reporting its financials. Sometimes, what you see, isn’t always what you get.)
A first-quarter loss of $138-million will attract the attention of many people but there may be signs that Nortel is headed towards terra firma.
Stripping away a number of extraordinary items, Nortel said its had a loss of 7 cents a share in Q1 compared with analysts’ estimates of 12 cents. Sales, meanwhile, were ahead of forecasts – coming in at $2.76-billion vs. $2.51-billion due to a big contract from its LG joint venture that came in a quarter ahead of schedule. (The Q1 results can be found here.)
Nortel CEO Mike Zafirovski said:
More analysis and thoughts later but here are some of the highlights that Nortel offered up:
- Revenue in the first quarter of $2.76 billion, up by 11 percent year over year, which included a release of deferred revenue associated with the completion of a significant contract in the LG-Nortel joint venture that was previously expected to occur in the second quarter.
- Gross margin of 41.6%, up 120 basis points year over year.
- Operating margin in the first quarter of 4.7%, up 512 basis points year over year.
- Cash balance, as at March 31, 2008 of $3.22 billion, included a seasonal outflow of cash from operations in the quarter of $260 million, in-line with the 2008 target.
Update: In early trading, Nortel shares were up 2.3%, or 20 cents, to $8.91. For more insight, check out Fortune and The Street. For extensive coverage of Nortel’s results, check out the Ottawa Citizen.
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