Shares of Nortel Networks drooped Friday after analysts cut sales targets and questioned the company's competitive position and its ability to reap profits by the fourth quarter of 2002.
Nortel said its customers are still cautious about spending, and seasonal weakness in the first quarter, plus a revamping of Chinese telecom networks, will result in a quarter-over-quarter drop in sales of about 10 percent to $3.1 billion.
Shares of Nortel, one of the world's largest makers of telecom gear, fell as much as 5 percent Friday morning before recovering some of those losses. The shares closed down 29 Canadian cents, or 2.4 percent, at C$12.05 in Toronto.
In New York, the stock closed 24 cents, or 3.1 percent, lower at $7.50.
+Analysts noted that Nortel's wireless sales, which have been a bright spot in its portfolio, were weak in the quarter and focus has shifted to whether Nortel can maintain its competitive lead.
"It will be difficult for Nortel to come out with a bunch of new competitive products in a timely fashion, given the massive restructuring they have undergone," said Yorkton Securities analyst Chris Umiastowski.
Nortel shed about 42,000 jobs last year, almost halving its payroll, in a massive cost-cutting drive. Its stock plunged from a peak of $87 to a low of $4.76 before climbing back.
The company's long awaited HDX optical switch is now in customers' labs, but has yet to garner sales, while other products for metro and long-haul optical networks are still under development.
"I am not challenging whether they will survive..but I am seeing a lot of competitive threats," Umiastowski added.
Umiastowski lowered his 2002 revenue targets to $13.2 billion from $14 billion, and doesn't expect Nortel to show profits until the first quarter of 2003.
Nortel reported first quarter sales of $3.46 billion, slightly ahead of earlier guidance. Net losses came in at a better than expected 57 cents a share, thanks to asset sales and aggressive cost cutting.
"We are all ready to make 2002 a journey back to profitability, and lots more fun," said Nortel's chief executive Frank Dunn in a conference call with investors.
"There is no question that market visibility continues to remain challenging. We expect our customers to move cautiously. We are not expecting a major negative turn in the economy, nor are we expecting it to bounce back," added Dunn.
UBS Warburg said it was no longer negative on Nortel and sees little risk of the stock sinking lower, with encouragement coming from the company's strengthened balance sheet, gross profit margin improvements of 5 percentage points to 30 percent, and flat sales over the third-quarter.
"The negatives were that wireless continues to decline sequentially and guidance for (the first quarter) was down up to 10 percent sequentially... The bright spot in the quarter were U.S. sales were flat sequentially, suggesting a bottom is near," UBS wrote in a morning note.
Nortel managed to increase its cash reserves to $3.5 billion, from $3.35 billion at the end of September, and lowered total liabilities by $1 billion to $17.2 billion.
Goldman Sachs said it expects sales to find a low point in March. It lowered its 2002 loss estimates to 21 cents a share from 18 cents a share, and lowered sales targets to $13.4 billion from $14.5 billion.
"We believe that when growth does resume it will be a moderate up trend rather than a rebound. We think that the guidance of profitability in (the fourth quarter) will prove challenging in spite of aggressive cost reductions," wrote Goldman Sachs analyst Natarajan Subrahmanyan.
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