Nortel Prelims Surprise the Street
The company reported that revenues for the first quarter of 2007 rose 4 percent to $2.48 billion, which exceeded many analyst expectations. Excluding the impact of its UMTS Access divestiture, Nortel said revenues increased by 12 percent over the year-ago quarter.
Gross margins also came in ahead of Wall Street's expectations, at slightly better than 40 percent of revenues for the quarter.
Nortel shares were up $1.64 (7.11%) to $24.71 in midday trading on Wednesday.
Nortel reiterated guidance for the fiscal year, expecting revenues to be flat-to-down compared to 2006, due in part to the divestiture of its UMTS Access business, which recorded $660 million in revenues last year.
The company expects margins for the year to remain in the low 40s as a percentage of revenue.
Nortel's preliminary first-quarter results came in ahead of the company's previous guidance and largely ahead of Wall Street's expectations. Analysts called for revenues to come in around $2.38 billion, in line with Nortel's prior expectations for flat year-over-year sales in the first quarter.
The company's 40-percent margins for the quarter also came in higher than Street expectations for margins in the high 30s. Analysts said the better-than-expected margins most likely came from stronger CDMA and enterprise sales, in addition to continued restructuring.
In a research note issued today, Citigroup analyst Mike Genovese said stronger margins suggest "some positive restructuring benefit and likely continued strength in CDMA/EV-DO/Rev A and Enterprise sales."
In addition to the company's preliminary financials, Nortel announced that David Drinkwater would take over as interim CFO beginning in May. Drinkwater had served as Nortel's Chief Legal Officer since December 2005, and is replacing former CFO Peter Currie, who the company had previously announced would step down on April 30. (See Nortel Previews Q1.)
Jefferies & Co. Inc. analyst George Notter wrote in a research note that, despite Drinkwater's previous experience as CFO of Ontario Power Generation, he expects the search for a permanent CFO to continue.
— Ryan Lawler, Reporter, Light Reading