CDMA, Charges Knock Nortel

Charges and CDMA hit Nortel's Q2 profits, but revenues and operating profits are up, and it's still on course to hit full-year targets

August 1, 2008

2 Min Read
CDMA, Charges Knock Nortel

Nortel Networks Ltd. has become the latest vendor to feel the CDMA pinch, as, like Alcatel-Lucent (NYSE: ALU), slower sales in North America in the second quarter had a negative impact on the vendor's top and bottom lines. (See AlcaLu's Q2 Dragged Down by CDMA.)

Nortel reported revenues of $2.6 billion, up slightly (2 percent) from a year ago, despite a slight fall in sales in its Carrier Networks division, its largest business unit by sales. Gross margin was 43.1 percent, up from 41.1 percent last year, while operating profits were $45 million, compared with an operating loss of $28 million a year earlier.

Nortel reported a net loss, however, of $113 million, or $0.23 per share, including a $67 million restructuring charge.

Nortel showed strengthening business in Asia/Pacific, where revenues were $584 million, up nearly 74 percent compared with last year. Revenues in the United States, EMEA (Europe, Middle East, and Africa), and Latin America all decreased year-on-year.

Across all its business lines, only CDMA and voice switching platforms fared worse compared with a year ago. CDMA sales dropped to $446 million from $494 million, while sales of circuit and packet voice systems fell to $144 million from $162 million last year.

Both of those business lines are part of the Carrier Networks division, which reported revenues of $1.04 billion, down 2 percent compared with the second quarter of 2007. Revenues from GSM and UMTS equipment, though, were up more than 11 percent to $448 million, thanks largely to increasing sales from the company's LG-Ericsson Co. Ltd. joint venture.

Nortel's other three divisions -- Enterprise, Services, and Metro Ethernet Networks (including optical equipment and carrier Ethernet switches) -- all reported better year-on-year sales, up 3 percent, 9 percent, and 4 percent respectively.

The vendor, though, says it's still on course to hit its full-year targets of low single-digit growth in revenues and gross margins of around 43 percent, despite the "general macro-economic weakness, continuing competitive pressures and potential of further reduced capex spending by key North American CDMA customers."

That's because it expects to see increasing sales in its Enterprise and Metro Ethernet Networks divisions during the second half of the year and is expecting to complete some wireless deals in the fourth quarter, "approximately $350 million of previously deferred revenue." (See Nortel Lands Deloitte, NT, MSFT Win in Germany, Nortel Touts Carrier Ethernet, Nortel Wins PBB Deal With Verizon, Nortel: There's More to PBT Than BT, and Virgin Trials 40-Gig.)

Nortel's share price ended Thursday at $7.64.

— Ray Le Maistre, International News Editor, Light Reading

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