Nortel, Sonus warn
 
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Nortel said it now expects third quarter revenues to decline 15% from the second quarter, instead of the 10% sequential drop mentioned in previously stated guidance. Nortel cited lack of spending by U.S. wireline and Asia wireless carriers for the slump.
The company also expects a marginally larger pro forma net loss per share in the third quarter compared to the second quarter. In its second-quarter earnings announcement, Nortel said it expected "ongoing sequential improvement" in its bottom line in the third and fourth quarters of 2002. Nortel's second-quarter net loss was 20 cents per share.
This is Nortel's second third quarter warning. In August, Nortel issued a downcast forecast for the third quarter and its intention to cut 7,000 more jobs.
Nortel still plans to return to profitability by the end of June 2003.
Nortel also announced that its board will propose a reverse stock split to shareholders in order to raise the share price and avoid being delisted on the New York Stock Exchange. Nortel's stock has been hovering well below $1 per share, the typical yardstick for determining whether a company remains on the Big Board.
Nortel's proposal will seek to raise the stock price between $10 and $20 per share. Sonus, meanwhile, warned that its third quarter results would also not meet expectations. Sonus now anticipates third-quarter revenue to be approximately $7.0 million, a 67% sequential drop, which translates into a net loss of 9 cents per share.
Analysts were expecting revenue of $21 million and a loss of 5 cents per share. Sonus also fingered dissolving wireline capex as the culprit for its recast third quarter. Sonus has 15 revenue generating customers, each of which has reduced spending significantly.
Qwest, for example, historically a Sonus 10% customer, recently withdrew 271 applications in several states, an action that hurts demand for Sonus's products, according to UBS Warburg. Warburg also believes Deutsche Telekom has also cut back purchases dramatically given recent management changes, weakening Sonus' revenue prospects from this major customer. Sonus last month announced a 17% reduction of its 492-strong workforce.
Warburg says worldwide wireline capex in 2003 will be almost half of what it was in 2000 - $101 billion vs. $183 billion, a drop of 45%. This is a chief contributor to recent announcements of cost cutting and disappointing results among vendors such as Avici, Ciena, Lucent, Riverstone and Tellabs.
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