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Keeping Hold on Nortel

Nortel Networks (NT): Maintains 3 STARS (hold)

Analyst: Ari Bensinger

Nortel sees Q2 sales falling 27% from Q1 on a sharp

drop in optical inter-city and circuit switching. Gross

margin will deteriorate to 27% from historic 40% level, resulting in a $1.5 billion operating loss. The company obtained an added $2 billion in credit facilities. Nortel will realign its cost structure for $20 billion in its revenue run rate, vs. 2000 revenue of $30 billion. Restructuring will yield $3.5 billion in annualized cost savings. Nortel is lowering capital spending, discontinuing dividends, and reducing inventory levels and financial commitments. Nortel expects to be cash-flow positive in 2002.

Quanta Services (PWR): Maintains 5 STARS (buy)

Analyst: Mark Basham

In a call with management, new guidance of 5% internal revenue growth in 2001 vs. 15%-20% prior view reflects removal from a backlog of delayed utility and cable projects, in addition to

further softness in the telecom market. Many of the utility and cable projects will still occur, however, S&P is reducing the telecom outlook another 10%. The company also is not bidding on low-margin work. Based on pushouts and order reductions, S&P is cutting the 2001 estimate from $2.08 to $1.75, and cutting 2002's estimate from $2.38 to $2.10. S&P also is trimming the12-month target from $40.50 to $36.50.

Interpublic Group (IPG)

Analyst: William Donald

IPG sees $0.30-$0.35 Q2 EPS, down from earlier $0.40-$0.45. This compares with $0.56 one year ago. IPG says revenue is trending lower than expected because of a lack of new business and weak client spending across the board, reflecting the weak U.S. economy and slowing international economies. Also, there's about an $0.11 impact from revenue problems at Lowe Lintas, a higher interest expense and tax rate, and more shares. S&P is lowering the 2001 estimate by $0.20 to $1.20. S&P sees resumed double-digit revenue and earnings gains in 2002 and still sees 2002 EPS of $1.45.

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