Nortel Downgraded on Weak Earnings

On Nortel’s (NT) post-earnings conference call Wednesday, CEO Mike Zafirovski said the company is in the middle of a 3-to-5 year “journey” to recreate the telecom equipment company. It looks like the journey in the latest quarter went through a pretty rough neighborhood.

Nortel Wednesday morning reported revenue for the quarter of $3.2 billion, a bit shy of the Street at $3.28 billion. EPS adjusted for extraordinary items was 31 cents, short of the Street at 47 cents. The company said it expects low-single-digit revenue growth in 2008, while the Street was more in the mid-single-digits range.

The company also said it will cut 2,100 jobs in 2008, and move another 1,000 to “higher growth and lower cost geographies.”

On the call, Zafirovski repeatedly made mention of slowing carrier demand, and weakness in North America; he noted that revenue came in at the low end of previous guidance. He did say that “Q4 results were a positive contrast to most of the competition,” which I think tells you something about the state of the telecom equipment business. “We were not viewing 2008 to be as challenging as it’s turning out to be,” he said. “We are taking a more realistic view of what’s happening in the marketplace and our opportunities.”

The Street was underwhelmed.

Standard & Poor’s communications equipment analyst Ari Bensinger cut his rating on the stock to Hold from Buy, noting that the restructuring of the company is progressing slower than expected, and that with the economy softening, “it will be difficult for NT to achieve any sales growth in ‘08.” He cut his ‘08 EPS estimate to 75 cents, from $1.45, and cut his price target to $12, from $17.

Likewise, RBC Capital’s Mark Sue cut his rating on the stock to Underperform from Sector Perform. He also says the company will have a zero-growth revenue year. “The overall situation remains little changed for Nortel in a consolidating industry,” he wrote. “Nortel’s revamped management team is doing the best they can…unfortunately, the prior management team at Nortel left the company with a very damaged balance sheet.”

Nortel Wednesday is down $1.48, or 13%, at $9.97.