Business improves at Nortel

From pain comes gain

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

The beleaguered company almost tripled profit, fuelled by demand for enterprise and wireless products. The second quarter results saw net earnings hit $45m, which translates into $0.01 per common share on a diluted basis; this is in contrast to $16m it reported in second quarter earnings in 2004. Revenue increased by 10 per cent on 2004 figures, from $2.59bn to $2.86bn, beating analyst's expectations.

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

The latest results indicate a turnaround in fortunes for Nortel, which reported a net loss of $49m in the first quarter of 2005, hot on the heels of a 75 per cent 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 $730m. CDMA wireless products also performed well, increasing its revenues by 17 per cent to $662m, while revenue from the carrier packet network sector grew to $743m, representing a year-on-year increase of three per cent. GSM and UMTS networks revenues were down nine per cent sequentially, to $719m, but increased by one per cent 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 $90m related to restructuring activities and $39m 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 per cent in 2005, with gross margins predicted to be in the range of 40 per cent to 44 per cent 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.

© ENN