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Original Source: FD (FAIR DISCLOSURE) WIRE
. Terry Glofcheskie, Nortel Networks, IR . Mike Zafirovski, Nortel Networks, President, CEO . Peter Currie, Nortel Networks, EVP, CFO
. Nikos Theodosopoulos, UBS, Analyst . Mark Sue, RBC Capital Markets, Analyst . Alex Henderson, Citigroup, Analyst . Gus Papageorgiou, Scotia Capital, Analyst . Ehud Geldblum, JPMorgan Securities, Analyst
. Jiong Shao, :ej,am Brothers, Analyst . Paul Sagawa, Bernstein & Co., Analyst . Octavian Popescu, Thomas Weisel Partners, Analyst
NT reported 1Q06 revenues of $2.4b and net loss of $167m. 1Q06 EPS was a loss of $0.04. The Co. expects strong revenue momentum for the rest of the year resulting in high-single digit growth for the full year vs. 2005.
A. Key Data From Call 1. 1Q06 revenues = $2.4b. 2. 1Q06 net loss = $167m. 3. 1Q06 EPS = a loss of $0.04. 4. 1Q06 OpEx = $1.1b. 5. 1Q06 DSO = 99 days. 6. Cash at the end of 1Q06 = $2.7b. 7. Full-year 2006 revenue growth expectations = high-single digit growth.
S1. 1Q06 Review (M.Z.) 1. Highlights: 1. NT is current in its financial reporting and plans to remain as such. 2. Revenues came in pretty much in line, but GM was lower than the Co. had expected. 3. Revenue and operating margin momentum for the Co.'s business commencing in 2Q06 is pretty much in line with its previously communicated full-year game plan. 4. The rest of the year growth is expected to be very broad-based, but particularly strong is CDMA and optical from a product line perspective and from region in Europe and in CALA. 5. The Co. is driving both improvements in short-term financial results and at the same time making investments for the long-term health of the Co. 2. Revenues: 1. 1Q06 revenues of $2.4b were relatively flat on a YoverY basis, which was pretty much in line with the Co.'s expectations. 2. Revenues were impacted by the timing of certain contracts and both the backlog and deferred revenues increased during 1Q06. 3. The incremental impact of the NT-LG JV and the PEC acquisition, which is now part of the Nortel Government
Solutions, was approx. $90m for 1Q06, whereas revenues from
sold/exited activities was about $50m. 1. The net incremental positive impact was $40m. 3. Earnings: 1. The Co. was negative both on an operating and margin basis. 1. 6.9% operating margin percentage. 2. Net loss for 1Q06 was $160m (sic - see press release) vs. $104m in 1Q05. 1. The primary shortfall impacting results was the GM. 2. The Co. was not happy with the net loss for 1Q06, and it reiterated its commitment on implementing the programs,
which will deliver the 300-500 BP improvement per year and ultimately double-digit operating margin by 2008. 3. The Co. expects growth for the remainder of 2006 and for this to be very broad-based both product line wise and region wise on a YoverY basis. 4. Revenues by Segment: 1. Mobility and Converged Core: 1. Revenues were down 4% over 4Q05. 2. CDMA was down 4% primarily due to timing. 3. The Co. expects very strong CDMA revenues for the year. 1. The Co. continues to be very strong in this line and
remains a strong No. 2 position globally. 4. NT also continues to invest behind EV-DO with MIMO and OFDM, which will be the foundation of future mobile access networks. 5. On the GSM and UMTS front, revenues were down 11%, principally down with GSM revenues down, including in North America. 1. This was partially offset by growth in UMTS. 2. The Co. has some nice recent momentum in this product
line. 3. In Korea, SK Telecom launched a first commercial service
with HSDPA handsets geared to consumers. 4. In Israel, Partner Communications launched Israel's first HSDPA service. 5. In GSM-R, NT reached an agreement with China's Ministry of Railway covering nearly half of the nation's railway footprint, and as announced earlier in the year, the three-year voice core GSM/UMTS core deal with Cingular. 6. In circuit and packet voice, the Co. was up [17%] QoverQ. 1. As its succession continues to grow, the Co. was up 47% with growth pretty much in all the regions, while TDM was
relatively flat. 2. In 1Q06, the Co.'s market share remains strong, remains No. 1 in Carrier Voice over IP. 3. The Co. had a significant transaction in Spain, and also it likes to congratulate and thank EMBARQ, the former Sprint wireline business, which is one of its lead to North American customers. 4. The Co. reached a milestone with more than 1m Voice over IP lines with Nortel. 5. In 1Q06, NT cable operators' customers surpassed more than 1m cable Voice over IP lines and service. 7. Going forward, the Co. anticipates significant buildout in GSM in the emerging markets, including increased activity in China as the 3G licenses are delayed. 8. In North America, EV-DO rollouts will be coming to an end as the Co. comes to the completion of 2006 with DO Rev A deployment starting to ramp up before the year is over. 9. NT looks forward to deleveraging its very strong voice and SIP leadership to secure IMS market share in laying the foundation for future 3G networks. 2. Enterprise Solutions and Packet Networks: 1. The Co. was down 1% from 1Q05.
2. Circuit and packet voice was up 5% due to strong performance, particularly in Europe and in North America. 3. NT maintains its No. 1 Enterprise Voice over IP and TDM leadership in terms of lines and recent momentum. 4. The Co. won significant transactions with a leading gaming co. in North America, with a private airline co., with a Middle East consumer products manufacturing, and one of the top banks in China. 1. Expects to announce more significant wins in the enterprise space over the next month or so. 5. Optical was up 5% YoverY due to growth in metro optical, principally North America and Europe, while long haul sales remain relatively flat. 1. As reported by Dell 'Oro, NT was No. 1 in market share
position in optical in 1Q06, 14.2%. 2. The Co. also sustained its No. 1 market share position in Metro WDM for the seventh consecutive year. 1. This is just one example of how the Metro WDM work is
enabling the Australian Stock Exchange with Ethernet connectivity and the industry-leading storage extension capabilities to secure their mission critical data. 6. Data networking and security was down 12% YoverY mainly due to a decrease in sales of legacy products. 1. A recent significant transaction in this space was the announcement with Cypress Communications, which was one of the largest providers …