Nortel Conference Call: Pragmatically Bullish

I’ll leave it to the analysts to feed Nortel’s (NT) third-quarter financials into their models. Instead, I’ll offer my thoughts on the tone of the conference call.

Overall, I’d say it was a pragmatically optimistic. Nortel CEO Mike Zafirovski has gift for talking the talk. He comes across as credible and confident while not coming across as overly-enthusiastic. After all, the last thing analysts and investors want to hear is rah-rah, the future is bright, blah, blah, blah.

Here are a couple of Mike Z. gems from the call:

“There is market momentum. Orders are key indication and key customers wins. We are learning how to partner better, and based on the market and what we’ve seen from everyone else, both the Q3 resuls and Q4 [outlook] should give investors confidence the management team are playing the cards we have and playing them well, and trying to improve the cards we have for the future.”

In talking about Wi-Max, Mike Z. put a nice spin on things, saying that Nortel has 34 wins and trials (no breakdown of wins vs. trials).

“We think we are well positioned. Time wil time over the next six to nine months….We think Wi-Max will be an explosive growth story for the industry in 2008, and we are fighting aggressively there.”

Of course, it’s caveat emptor when it comes to the smooth-talking Mike Z. As much as he and Nortel are optimistic about the corner being turned, Mike Z. did concede market conditions are tough, especially in markets such as optical and GSM.

While Nortel expects single-digit growth in 2008, the telecom market is so volatile that you can’t be sure things will evolve as expected.

UBS: Good But Not Impressive

Nortel shares may have jumped 17% on Tuesday after the company posted a third-quarter profit but UBS Securities analyst Nikos Theodosopoulos has less enthusiastic approach.

In a research report entitled “3Q07 Review: Good but not impressive”, Theodosopoulos said gross margins beat expectations at 43%, investors need to pay attention the sustainability of Nortel’s LG-NT joint venture, which contributed $65-million of operating profits on revenue of $200-million to $250-million. “This level of profitability is well above recent trends and we question the sustainability of this level of profitability,” he said.

As well, Theodosopoulos points out that Nortel had foreign exchange gains of $67-million.

UBS rates Nortel a “neutral” with a target price of $20 - based on a 15x earnings multiple applied to its 2009 EPS estimate of $1.32.