Nortel Still Profitable in 2003

Nortel Networks Corp. (NYSE/Toronto: NT) is closer than ever to turning out a profitable 2003. The company announced its second consecutive quarter of breakeven results and remains profitable so far for the year (see Surprise! Nortel Earns a Profit).

In reporting its second-quarter results after the bell today, Nortel met analysts' expectations with a net loss of US$14 million, which translated into earnings per share of zero. That compares with net earnings of $54 million, or $0.01 per common share, in the first quarter of 2003 and a net loss of $697 million, or $0.20 per common share, in the second quarter of 2002.

After earning $54 million in the first quarter and losing $14 million in the second quarter, the company is still running a net profit for the year.

Even still, management seemed as noncommittal as ever. "The business is stable, it's plateaued... I think we will see some momentum... business is active, but I'm not going to get into forecasting," said CEO Frank Dunn when asked during a Q&A session to predict what the second half of the year would bring.

Analysts had projected zero cents a share, according to First Call, and they are projecting Nortel to earn 0.04 per share during 2003.

On the downside, revenues slipped slightly. Revenues were $2.33 billion, compared to $2.40 billion for the first quarter of 2003 and $2.77 billion for the second quarter of 2002. At the end of the last quarter, the company had issued no revenue forecast.

In commenting on the business climate in the quarterly conference call, Nortel CEO Dunn gave few hints as to when things might improve. But he also didn't fire any large warning signals.

"The underlying demand continues to reflect a cautious spending climate and a long sales cycle," he said. "I'm very cautious, but I'm more comfortable than I was six months ago."

During the Q&A session about the rest of the year, Dunn conjectured that "there is a higher probability of an upside surprise in the second half of the year."

Although the results are by no means stellar, it does mean that even a slight uptick in revenue will translate into profits for the company. This comes in contrast to Nortel's large rival across the border, Lucent Technologies Inc. (NYSE: LU), which is still losing money and earlier in the week said it doesn't expect to turn a profit until next year (see Lucent's Revenue, Losses Shrink ) .

As for specific sectors, Dunn said he was "disappointed" with results in enterprise networking, which declined steeply, but pointed to wireless and optical networking as bright spots. Wireless grew 4 percent from the first quarter, boosted by CDMA business in Asia and GSM and GPRS network buildouts in the U.S. Optical networking sales grew 10 percent.

The weakness in the enterprise business may raise questions about whether Nortel is losing more market share to Cisco Systems Inc. (Nasdaq: CSCO), the leader in that market.

It was apparent that much of Nortel's new business came from Asian service providers, and more than 50 percent of Nortel's revenue now comes from outside of North America.

"We see continued advancement in the delivery of wireless data, and we see strong growth in Asia."

Dunn observed that projects at NTT Communications Corp. helped the optical sales. He also emphasized growth in the voice-over-packet business with North American MSOs and Asian service providers.

Nortel's cash balance at the end of the quarter stood at $4.2 billion, up sequentially by about $200 million. Its total long-term debt stayed about the same at $3.9 billion.

— R. Scott Raynovich, US Editor, Light Reading

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dljvjbsl 12/4/2012 | 11:43:15 PM
re: Nortel Still Profitable in 2003 The following is from the Globe and Mail about Nortel's yeart over year results. The comparison is from the same quarter last year.

Broken down by divisions, sales at wireless networks fell 12 per cent from year-earlier levels, enterprise networks sales decreased 14 per cent, wireline networks sales slid 16 per cent and optical networks sales tumbled 27 per cent.

By region, revenue at Nortel's Canadian division were weakest, sinking 31 per cent from the second quarter of 2002. In the United States, they slid 24 per cent, while the Middle East and Africa region sank 8 per cent.

zettabit 12/4/2012 | 11:43:15 PM
re: Nortel Still Profitable in 2003 Compared to Lucent's financials, Nortel looks good:

- Quarterly revenue is higher
- Gross margins are higher
- R&D is higher (in theory means more new products in pipeline)
- Cash on hand is approx same, but total debt is lower
- Inventories are lower

Dunn is proving to be a good CFO....ooops, I mean CEO.

However on optical I wonder how they will be able to sustain the business:

- they will not win the AT&T ULH business (rumored to go to Siemens)

- they are rumoured to not win the MCI ULH business (not on supposed short list)

- they are not on the US Government GIGBE short list

- Qwest will not be spending again anytime soon for long-haul

- they lost BT to Ciena

- China long-haul deployments are winding down

- Their SDH/SONET customer base is primarily Canadian Bells and RBOCs - they are a distant #3 or 4 player as an SDH supplier in Asia & Europe

Compared to the days when Nortel was winning two out of three long-haul optical backbones, they have a long way to go to get back to being on top (whatever Dell'Oro says!).

The question is, who is getting the momentum? Maybe Nortel will remain leader by default.
Belzebutt 12/4/2012 | 11:43:12 PM
re: Nortel Still Profitable in 2003 Operating profit is $66 million I believe...
jsailor 12/4/2012 | 11:43:11 PM
re: Nortel Still Profitable in 2003
From an enterprise perspective, they are quickly disappearing so don't expect any profitability from there. Nortel's data equipment is dated and lacks the basic features needed to compete. Simple things like in-line power for IP Phones still isn't shipping. Their VPN equipment may have been recently upgraded, but they already lost that war. Their IP Telephony story is abismal and way behind the competition. Cisco, Avaya and even Alcatel have better products. Customers with existing Meridian are counting the days until they can get rid of them and most cases, refusing to sink any money the existing IP telephony equipment.

They may be making some kind of comeback, but it won't be fueled by the enterprise space.

BobbyMax 12/4/2012 | 11:43:10 PM
re: Nortel Still Profitable in 2003 Ceartinly those people who bought Nortel stock when it was below a dollar are now selling nearly twice the price are certainly that Nortel is profitable. The investors would continue to do and short the stock prices. These lowly profiteers
are prepared to do anything.

Unless the shareholders of pre=crash days are made wholesome, it is obscene to talk about Noretl being profitable.

All eyes should be focused on Lucent and Nortel. Other marginal players like Cisco all start-ups just cannot cut it when it comes tp providing converged services. Nortel has pretty healthy product line. Lucenrt has lost control on introducing new products. This would hurt Lucent. There are still 35,000 employees. It appears that everyone at Lucent is idle. Lucent should institute good performance evaluation criteria and get rid of employees who are ot performing or cannot perform.

When it awarding real contract from a respectable carriers. only Lucent, Northern and Alcatel have capabilities to implement a large network.
WiserNow 12/4/2012 | 11:43:10 PM
re: Nortel Still Profitable in 2003 Bobby Max said:

Other marginal players like Cisco all start-ups just cannot cut it when it comes to providing converged services.


The sad thing is that neither Nortel nor Lucent has ever cut it providing converged services either.

Cisco is a pure equipment OEM, not interested in integration. Lucent buying Cisco equipment to integrate and resell doesn't seem to be a better answer.

Nortel has lost the enterprise market to Cisco, so they no longer have an end-to-end solution.

I think this situation creates a place for a savvy industry insider to do something new and threatening to stodgy providers like Lucent, Nortel and yes, Cisco.
hyperunner 12/4/2012 | 11:43:09 PM
re: Nortel Still Profitable in 2003 Folks,

I'm not very good at reading balance sheets, but given that sales are declining, then there only seem to be two ways of improving profitability...

<ul>Cut costs.</ul>
<ul>Sell assets.</ul>

Cost cutting can only go so far in big companies for two reasons...

1. They simply refuse to restructure at the top. Look at Lucent, where the ratio of senior management to productive staff is higher than ever. So if Nortel dumps 50% of its employees worldwide, why isn't that reflected to the same extent in the management hierarchy?

2. As a result of (1), cost cutting hits muscle long before all the fat is gone. So that means cuts in product lines and R&D, and that's generally reflected in lower sales following the cuts. Again, I'm more familiar with the chaos at Lucent where line after line has been chopped until there's now not a single Lucent-made packet product (I don't count the Ascend range, which was state of the art a long time ago, but is now obsolescent).

So, have all NT's assets now been sold off? Is there any more family silver to help out next quarter?

LongRun 12/4/2012 | 11:43:09 PM
re: Nortel Still Profitable in 2003 Not on GigBE short list?
captain kennedy 12/4/2012 | 11:43:08 PM
re: Nortel Still Profitable in 2003 Other than the publicized ATT/Siemens agreement, how can one corroborate your claims, specifically MCI and GIG-BE?
zettabit 12/4/2012 | 11:43:03 PM
re: Nortel Still Profitable in 2003 Captain Kennedy,

I can't offer you any public proof of stuff that hasn't been announced, but despite throwing all the best commercial offers it could at MCI Nortel is no longer in the running there - try your contacts at Ciena and Siemens to confirm.

Same thing at GIGBE - they have a strong shot at the MSPP part of the business, but are not short-listed for the WDM portion, and HDX is a long shot for the Digital OXC part of the business. Try your contacts at Corvis and Lucent for confirmation.
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