Nortel Buzzboard

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.

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Scott Wickware, VP of Marketing and Strategy for Nortel’s Carrier Networks businessThis week is CTIA Wireless 2008, one of the industry’s biggest wireless events of the year. Nortel will be participating of course - with a booth, a good amount of news, and various session speakers.

One of those Nortel speakers will be Scott Wickware, VP of Marketing and Strategy for Nortel’s Carrier Networks business. A 16-year veteran of Nortel, Scott is responsible for charting the overall business and go-to-market strategy for Nortel’s largest business, with responsibilities for all aspects of commercial, product and strategic marketing. He also sits on the Board of Directors of both CTIA and the Wireless Foundation.

In advance of CTIA, I asked Scott a few questions on Nortel’s wireless strategy, the evolution of our portfolio, and his thoughts on the direction the wireless industry is going:

The industry increasingly sees CDMA as a declining market. Considering Nortel’s leadership in this space, where do you see CDMA demand headed, and how long can Nortel realistically rely on CDMA as a money-making market?

Today’s telecom infrastructure market is going through a bit of a rough patch at the moment brought on by the global economic conditions, particularly in the US. Having said that, we continue to see strength in many segments of the market with operators investing in expansions and upgrades of today’s current technologies. Nortel has done reasonably well in this environment by growing many of our businesses in markets that are essentially flattish.

As an example, Nortel has shown great strength in CDMA over the past year by acquiring an incremental 2% in market share. We continue to focus in 2008 around improving the quality of our products and customer relationships and selectively growing our market share in CDMA and other technologies. At the same time, we’re beginning to see carriers committing to 4G and we expect commercial deployments starting in 2010. It is essential that Nortel is early to market with a strong portfolio of solutions to play a significant role in next generation mobility to ensure to ensure that we successfully transition our customer base and our own revue from today’s existing technologies.

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Next week is another big wireless trade show, CTIA Wireless 2008 in Las Vegas.  As part of the ramp-up for that event, Nortel today issued several press releases on new wireless contract wins.

This morning Nortel announced a new 5-year CDMA contract with U.S. Cellular, the nations 6th largest mobile operator with over 6 million customers.   U.S. Cellular has been a Nortel wireless customer since the mid-1980s, and has been deploying Nortel CDMA equipment since 2002 (with past announcements here and here).  In addition to equipment, the contract also includes emergency technical support, spares management, software patch management, performance monitoring and other services from Nortel’s Global Services portfolio.

Also today, Nortel …

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