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Nortel sparks sell-off
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October 24, 2000: 6:31 p.m. ET
Nortel beats estimates, but revenue shortfall hurts optical stocks
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NEW YORK (CNNfn) - While Nortel Networks Corp. beat Wall Street's earnings forecasts by a penny per share Tuesday, a revenue shortfall caused its stock and that of other optical networking companies to plunge in after-hours trading.
Brampton, Ontario-based Nortel reported third-quarter net income of $574 million, or 18 cents per diluted share, up from $314 million, or 11 cents per share, in the year-earlier quarter, excluding special items. Analysts had expected a profit of 17 cents per share, according to earnings estimate tracker First Call.
Revenue increased 42 percent to $7.31 billion. While most companies of Nortel's size would be thrilled with that rate of revenue growth, the company's sales fell short of analysts' expectations of roughly $7.5 billion for the quarter. Nortel, one of the world's largest makers of telecommunications equipment, is best known for its strength in optical networking, which is the transmission of information over optical fibers instead of copper wires. The revenue shortfall hit Nortel's high-flying stock and that of other companies in the optical sector, which has been red hot this year.
Nortel (NT: Research, Estimates) shares plummeted $12.56 to $50.75 in after-hours trading, after slipping $3.63 to $63.31 in regular trading on the New York Stock Exchange. Optical components maker JDS Uniphase (JDSU: Research, Estimates) dropped $9.12 to $85.94, while fellow optical components company SDL Inc. (SDLI: Research, Estimates) lost $27.22 to $288.75. Networking giant Cisco Systems (CSCO: Research, Estimates) lost $3.62 to $51.25 after-hours.
Nortel's growth fueled by optical
Nortel said that its revenue growth was primarily fueled by its optical Internet solutions business, which saw revenue jump nearly 90 percent. The company aims to sell more than $10 billion of optical networking equipment this year.
Nortel said it now anticipates posting full-year-2000 operating earnings growth in "the low 40s" on a per-share basis, up from the company's original guidance of percentage growth in "the high 30s." The company is expected to post earnings of 73 cents per share for the full year, according to the First Call estimate.
Nortel held its earlier revenue projections steady for the full year. Revenue is expected to rise at least 40 percent over 1999 results.
"Looking forward to 2001, we expect the overall market to grow in excess of 20 percent," said John Roth, president and chief executive officer. "Given our strong market position and industry-leading networking solutions, we expect to continue to grow significantly faster than the market, with anticipated growth in revenues and earnings per share from operations in the 30 to 35 percent range." 
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Nortel Networks
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