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More Bad News From Nortel
Nortel has just announced its Q408 and FY08 financials, and the news was not good. Revenues decreased and losses increased significantly during Q408, although the Nortel press release attempted to deflect the bottom line results by spinning some metrics such as operating margins. Q408 revenues for Nortel's Enterprise Solutions (ES) group were down 30% Y/Y and 13% Q/Q. Q408 CPE line station shipments were down 18% Y/Y and 9.3% Q/Q. The Q408 declines were in line compared with other major system suppliers (a little better than some, a little worse than others--see my feature article Cisco the Big Winner in 2008 CPE Market Share Race). According to Nortel, ES revenues were negatively impacted by lower volumes in all businesses and geographies and unfavorable effects of foreign exchange compared to the year ago quarter. The glum financial news comes less than a week after Nortel announced another round of layoffs (3,200 employees).Nortel's earlier bankruptcy filing could not have been at a worse time, with economic indicators predicting a major recession lasting throughout this year and likely into next year. New enterprise communications purchases are something most customers can postpone until the economy recovers, because many installed systems continue to perform at high reliability levels and incremental upgrades are available, especially for products like Nortel's previous-generation Meridian 1 platform.
Bankruptcy, recession, and new competition from the likes of Microsoft will make it tough for Nortel to maintain its market position among the leading enterprise communications system suppliers. The company is likely to retain a large percent of its installed customer base (who have proven to be very loyal to Nortel over the years), but, based on conversations with more than a few of my telecommunications consultant friends, will have great difficulty winning new accounts to replace lost accounts. The Nortel risk factor has never been higher, and customers today are becoming more and more risk averse as they try to navigate today's murky financial waters.