Earnings season in the telecom world appears to have a theme: Steep cuts in expenses are now yielding mild upside surprises on the profit side.

This morning, Nortel Networks Corp. (NYSE/Toronto: NT) surprised the market with its first quarterly profit since 2000. This comes a day after AT&T Corp. (NYSE: T) surprised the financial markets with an upbeat quarter, and Lucent Technologies Inc. (NYSE: LU) reported a smaller loss than was expected (see Nortel Shows Q1 Profit, AT&T Results Are Upbeat, and Lucent Grows Slightly, Loses Less).

Nortel reported net earnings of US$54 million, or a penny per share, on revenues of $2.40 billion. Those revenues were down 5 percent from the fourth quarter of 2002. But most importantly, Nortel actually increased its cash position by $100 million to $4 billion.

Looking forward, however, Nortel executives remained cautious. On the quarterly conference call they warned of continued weak capital spending levels. The company did not give specific financial guidance but stated that "The company continues to expect the overall telecommunications equipment market to be down modestly in 2003 compared to 2002."

Meanwhile, Nortel's revenues shrank across all segments. Compared to the first quarter of 2002, Wireless Networks segment revenues decreased 16 percent; Enterprise Networks revenues decreased 9 percent; Wireline Networks revenues decreased 18 percent; and Optical Networks segment revenues decreased 33 percent.

The reception on Wall Street was upbeat. Shortly after opening trading, Nortel shares rose 0.09 (3.52%) to 2.65, while the general market was down.

— R. Scott Raynovich, US Editor, Light Reading