Nortel Bores in Q4

Nortel says to look for 'flat to slightly down' revenues in 2007

Raymond McConville

March 19, 2007

2 Min Read
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Nortel Networks Ltd. reported its fourth-quarter and full-year results for 2006 last week, but finally held its conference call this morning to discuss the details. The big takeaway was that the company provided "flat to slightly down" guidance for 2007, which may have sent the wrong signal, given the vendor's UMTS divestiture earlier this year.

For the fourth quarter, Nortel lost $80 million, or $0.19 per share on revenues of $3.32 billion. For the full year, the company earned $28 million, or $0.06 per share on revenues of 11.42 billion. (See Nortel Reports Q4.)

Nortel saw its biggest gains made in its Enterprise Networks division, which saw a jump of 61 percent in revenues and noted key business wins with The New York Times and the Montreal Canadiens, to name a few.

While Nortel is calling for flat numbers for 2007, much of that can be attributed to the divestiture of its UMTS business, which it sold to Alcatel at the end of 2006. UMTS accounted for 6 percent of total revenues, or $660 million.

"We note that the UMTS divestiture represents a 6 percent drag on revenues so on an organic basis, Nortel's guidance of flat to slightly down sales in 2007 likely represents 4 percent to 6 percent order growth," writes Citigroup analyst Michael Genovese in a report released yesterday.

Still, Wall Street as a whole wasn't thrilled with Nortel's results. Tim Long of Banc of America Securities LLC regards Nortel's outlook as "disappointing" and sees little potential for revenue growth.

What still drags on the company is its years-long financial scandal, which led to executive dismissals and charges from the SEC against four former Nortel brass last week. (See SEC Charges Ex-Nortel Execs.) On the call today, Nortel acknowledged its troubled past and said its most recent set of restated earnings had no material impact on its fourth-quarter results. (See Nortel Restates the Restated.) Nortel officials also noted that the financial restatements are finally over. No, really. Seriously. Honest. They mean it.

Shares of Nortel were down $0.29 (1.07%) to $26.74 in early afternoon trading on Monday.— Raymond McConville, Reporter, Light Reading

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