Nortel's Credibilty Issues

In the past five months (sincel CEO Frank Dunn and CFO Doug Beatty were fired), Nortel has been trying to restore its credibility. Bringing in ex-U.S. Admiral Bill Owens was seen as a necessary move in this direction despite his lack of private sector experience and success. Unfortunately, the company just can't seem to do the right thing. Just when you think they're getting back on the beam, something happens that causes the credibility process to start all over again. The latest “incident” is Nortel's disclosure in an Ontario Securities Commission filing that third-quarter sales will be lower than expected. Instead of US$2.6-billion in third-quarter revenue, Nortel now expects something around US$2.3-billion. Sales for 2004 could hit US$10.3-billion, compared with the US$10.65-billion Thomson First Call concensus. Nortel has either adopted more restrictive accounting practices; the market has taken an unexpected late-summer dive; or the company's senior executives/market analysts have little clue what's going on. It harkens back to early-2001 when ex-CEO John Roth bullishly predicted Nortel's sales would climb to US$40-billion. When the bottom fell out of the market, he expressed complete shock. While yesterday's news is not as shocking, coming out with a lower than expected sales forecast was the last thing Owens or Nortel needed right now. If you're an investor, this is becoming an increasingly difficult company to believe. How can you purchase stock when management doesn't appear to have his hand firmly on the tiller. For another interesting take on Nortel's recent troubles, check out the Motley Fool's Bill Mann.