Nortel Networks' CEO Sees Market Stabilizing

The global networking business is showing signs of stabilization, said Frank Dunn, president and CEO of Nortel Networks, in a presentation on 20-February-2003 to the RBC Capital Markets conference in Whistler, British Columbia. He does not expect further large CAPEX cuts from the carriers and predicts spending for this year will be flat to down slightly. Spending for wireline networks, Dunn said, is likely to be stronger than for wireless. The telecom shakeout has left perhaps 50 to 60 major service providers worldwide as survivors. Telecommunications is fundamentally a good business and a growth market, asserted Dunn, with the total telecom services spending for 2003 likely to exceed US$1 trillion, about 2% of the global GDP. However, carriers are experiencing declining margins, higher operating expenses and far higher utilization rates of the networks. Dunn argued that carriers need to spend money to drive new data service revenues and to make their networks more efficient. The spending will be concentrated on broadband and on packetization of voice networks, an evolutionary process he believes will have many of the same dynamics seen when the industry converted from digital to analog, or when optical backbones upgraded to 10 Gbps. Nortel Networks has signed over $2 billion in voice over packet contracts to date. Dunn also remains confident that wireless networks will be upgraded to 3G, as the economics of even conventional services over 3G is better than over 2G. Other areas highlighted by Dunn’s presentation include security solutions and VPNs. As for Nortel Networks, Dunn said its restructuring actions are essentially complete and its new business plan is in place. In its latest fiscal quarter, the company achieved gross margin improvements across all businesses. Dunn does not expect merger/consolidation of any of the major network equipment suppliers. Instead of consolidation, he expects there will be continued rationalization as the remaining equipment players exit any businesses that are not successful or core to their mission. Dunn also noted that Nortel Networks’ cash position remains strong, with no significant debt repayments due until 2006. An archived webcast of the presentation is online.
http://www.nortelnetworks.com/corporate/investor/