Business improves at Nortel

09-08-2005

by Ciara O'Brien

Telecoms equipment maker Nortel Networks got a boost on Monday when it reported vastly improved results for its second quarter.

The beleaguered company managed to almost triple its profit, fueled by demand for enterprise and wireless products. The second quarter results saw net earnings hit USD45 million, which translates into USD0.01 per common share on a diluted basis; this is in contrast to USD16 million it reported in second quarter earnings in 2004. Revenue increased by 10 percent on 2004 figures, from USD2.59 billion to USD2.86 billion, beating analyst's expectations.

Shares in the company rose by more than 13 percent after the news was announced.

The latest results indicate a turnaround in fortunes for Nortel, which reported a net loss of USD49 million in the first quarter of 2005, hot on the heels of a 75 percent drop in profit in the company's fourth quarter results for 2004.

However, things are looking up for the company, with growth throughout most of its business sectors in the second quarter. Enterprise network sales surged 26 percent quarter-on-quarter to reach EUR730 million. CDMA wireless products also performed well, increasing its revenues by 17 percent to USD662 million, while revenue from the carrier packet network sector grew to USD743 million, representing a year-on-year increase of 3 percent. GSM and UMTS networks revenues were down 9 percent sequentially, to USD719 million, but increased by 1 percent on 2004.

"We are playing to win, and Nortel's commitment is to long-term value, not just short-term gain," said Bill Owens, vice chairman and chief executive officer of Nortel. "This should be apparent as we continue to increase our investment in our enterprise business, evolve our product portfolio and build new businesses."

The results also included charges of USD90 million related to restructuring activities and USD39 million in costs from the sale of businesses and assets.

"This quarter's improved financial performance and positive momentum is proof that Nortel is strong, our business is building and our results are heading in the right direction," said Owens.

Looking ahead, Nortel expects to increase revenue by about 10 percent in 2005, with gross margins predicted to be in the range of 40 percent to 44 percent of revenue.

The company has suffered a number of setbacks in recent months, with an accounting scandal leading to the sacking of several executives, including its then-chief executive Frank Dunn and former Chief Financial Officer Doug Beatty.

It also cut a number of jobs, with a restructuring plan eliminating 3,250 jobs worldwide. Nortel currently employs about 1,000 people throughout Ireland, including 300 in a Galway-based R&D facility and 700 in a Belfast factory.