Nortel whacked by currency, carrier spending, delays
The technology confession season continues. Next up to bat is Nortel, which lowered its third quarter revenue targets because it is seeing "significant pressure" as telecom carriers cut back on spending and enterprise customers curb IT spending.
Bottom line: Nortel (all resources) is now expecting revenue of $2.3 billion, down from Wall Street expectations of $2.6 billion. Gross margins will be 39 percent because of a product delivery delay and pricing pressure. For the year, Nortel sees revenue falling 2 percent to 4 percent from 2007 with gross margin of 42 percent.
The news isn't entirely unexpected. Nortel is a weak sister relative to Cisco, which isn't exactly lighting up the scoreboard. Meanwhile, Ciena also warned that it was seeing weak demand from telecom carriers including big names like Sprint Nextel and AT&T. Ciena on Sept. 9 cut its fourth quarter revenue target to $190 million to $210 million compared to Wall Street estimates of $263 million. From the statement:
With a sustained and expanding economic downturn, the Company is experiencing significant pressure as Carrier customers cut back their capital expenditures further than previously expected and certain Enterprise and Metro Ethernet customers defer new IT and optical investments. As well, since reporting second quarter 2008 results, the Company is seeing additional pressure on revenue due to foreign exchange impact and certain product delivery delays from the third quarter into the fourth quarter.
Simply put, currency fluctuations, weak spending and enterprise spending malaise is a dangerous brew.
As a result, Nortel is planning another restructuring--has it ever NOT been restructuring this decade? Nortel CEO Mike Zafirovski says the company will undergo a "comprehensive review of our business" and plan to sell its Metro Ethernet Networks business, which includes optical and carrier Ethernet products. That move makes sense given carriers are throttling back on spending.Also see: Jason Perlow: Economic crisis as a technology change agent