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Just a reminder that Nortel will be announcing our financial results for 3Q08 next Monday. The earnings press release will be issued at approximately 6:00am ET. Then at 8:30am ET, Mike Zafirovski (President and CEO) and Pavi Binning (Executive Vice President and CFO) will host a live audio webcast …
Nortel this morning has issued this press release with two significant pieces of news:
Nortel has announced the intent to “explore a divestiture” of its Metro Ethernet Networks (MEN) business.
Nortel has announced a preliminary view on 3Q08 results (ending Sept 30), and revised its full-year 2008 outlook.
The MEN business, which is led by Philippe Morin, includes Nortel’s optical business (including the 40/100gig solution that’s been making news in recent months) and Nortel’s Carrier Ethernet business. The release states that Nortel intends to explore the divestiture (the sale) of the MEN business for the “monetization of this asset”, which the press release highlights as “a premium asset with a highly differentiated offering.”
On the financial side, the press release …
I listened in on Nortel’s 2Q08 earnings call this morning, led by Nortel CEO Mike Zafirovski and CIO CFO Pavi Binning. You can access their presentations slides and hear a replay of the call here if you are interested.
Below are a few interesting points that I took from the call (not necessarily in order of the conversation on the call).
Revenue for the quarter was at $2.6 billion, up 2% year-over-year. For 1H08, Nortel’s revenue is now up 7% YoY.
Mike Z and Pavi Binning highlighted several times the continued progress with gross margins and operating margins. In the press release, Mike Z highlights: “We delivered gross margin of 43.1%, the seventh consecutive quarter of year-over-year improvement, and management operating margin of 4.3%, the eighth consecutive quarter of year-over-year improvement.”
The presentation highlighted gross margin improvements in Carrier Networks, Enterprise Solutions, and Global Services.
The presentation highlighted “significant improvements in G&A,” driven by cost reductions in IT and finance.
Mike Z said that in the second half of 2008, Nortel would be increasing and refocusing sales resources to focus on the growth segments of 40gig and unified communications
Mike Z said that: We have invested heavily in Enterprise and MEN, and we are starting to see the trajectory to growth in those areas.
A quick mention of an org change was mentioned, as Samih Elhage was announced as the new leader of the Carrier VoIP and Applications business.
Carrier Networks: quarterly revenue was down 2% YoY. CDMA revenue down 10%, with GSM/UMTS revenue up 11% YoY. The decrease in CDMA revenues, along with comments during the presentation of a slowdown in U.S. carrier spending were discussed during the call. One analyst asked about Nortel’s CDMA market share, to which Mike Z responded: “…certainly over the last couple of years we have gained [CDMA] market share and we don’t expect to lose that going forward.”
Enterprise Solutions: revenues were up 3% YoY. Gross margins increased while management operating margins decreased, reflecting increased marketing and R&D spending in the area. An analyst point out that the enterprise businesses still didn’t have a positive margin, and asked Mike Z how confident he was in this changing in 2H08. Mike Z commented that gross margin in the enterprise business had improved nicely in the quarter, and that Nortel expects enterprise to have a positive OM in the 2nd half.
Metro Ethernet: Revenues were up 4% YoY, with gross margins flat and management operating margin up. Several times during the presentation, Mike Z highlighted the growing momentum for Nortel’s 40gig solution. Nortel now has twenty 40gig wins, plus five tier one trials. Mike highlighted that at the last update (the analyst day event) that number was at 14 wins.
Global Services: Revenues were up 9%, with higher gross margins and management operating margins. A quick calculation shows that Global Services accounted for just over 20% of Nortel’s total revenues in 2Q08.
This Friday Nortel will announce earnings for the second quarter of 2008. The press release is expected to go out at 6:00am ET. At 8:30am ET, Nortel CEO Mike Zafirovski and CFO Pavi Binning will host a conference call to go over the results.
The easiest way to listen in is to go to the related Investor Relations page right before the start of the call and listen in through the live webcast.
Pavi Binning, Nortel’s CFO, was next up on the agenda. Here are some notes from his presentation:
Pavi said that Nortel’s goal was to reduce IT costs by 10% in 2008 and finance costs by 25% in 2008
He also showed the below chart, which provided a view of how Nortel’s revenues will evolve from today to 2011, and the CARGs for each business unit needed to achieve those goals.
