VoIP Systems

Nortel Stays the Course, Declares Victory

Nortel Networks Ltd. suffered a 37 percent dip in first-quarter revenues to US$1.73 billion and a net loss of $507 million, the bankrupt vendor announced Monday morning.

The company reported revenues of $2.76 billion and a net loss of $138 million, in the same period a year ago.

The Canadian firm, which is restructuring under protection from its creditors, said the decline was across all lines of its business and in all geographic regions, though the Asia/Pacific and EMEA (Europe, Middle East, and Africa) regions fared particularly badly. (See Nortel Seeks Protection Extension, Nortel Files for Bankruptcy Protection, and Nortel Appoints EMEA Administrator.)

Table 1: Nortel Q1 2009 Revenues by Region
Q1 2008 Q1 2009 Change
United States $1,081 million $803 million -26%
EMEA (Europe, Middle East and Africa) $591 million $356 million -40%
Canada $166 million $114 million -31%
Asia $787 million $366 million -54%
CALA (Caribbean and Latin America) $133 million $94 million -29%
Total revenues $2,758 million $1,733 million -37%

The bad news for Nortel's creditors, including laid off staff who have not received redundancy payments, the company announced an increase in its cash balance to $2.48 billion, up by $80 million from the end of 2008.

Nortel did not provide any clue as to whether it is close to announcing the sale of any of its business units, saying only that it's still restructuring the company to create a number of standalone business units that will provide it with the "maximum flexibility to choose the ultimate path forward for each of the businesses." Nortel announced that process in November 2008. (See Nortel Culls 1,300 Jobs, Loses $3.4B.)

Expectations are high that Nortel will soon announce the sale of its Carrier Networks, Enterprise Solutions, and Metro Ethernet Networks (MEN) units. (See Is Nortel M&A Near?)

Wireless dip hits carrier unit sales
Nortel's largest single division, Carrier Networks (mobile infrastructure, carrier VoIP technology, and applications-related technology), saw its sales plummet by 32 percent, and its operating profit shrink to just $42 million.

It was hit hard by a reduction in mobile networks sales that, noted Nortel, included "a reduction in spending by certain customers as a result of their change in technology migration plans." Verizon Wireless , one of Nortel's main CDMA equipment customers historically, recently announced its LTE-based next-generation plans and named a list of principle suppliers that left Nortel on the sidelines.

Table 2: Nortel Q1 2009 Revenues by Division
Q1 2008 Q1 2009 Change
Carrier Networks $1,089 million $737 million -32%
Enterprise Solutions $668 million $395 million -41%
Metro Ethernet Networks $402 million $360 million -10%
LG-Nortel $546 million $188 million -66%
Other $53 million $53 million 0%
Total revenues $2,758 million $1,733 million -37%

The MEN division, which houses Nortel's optical and Carrier Ethernet assets, took a 10 percent hit in terms of revenues, but reported a rise in operating profit to $42 million from break-even a year earlier.

The LG-Ericsson Co. Ltd. joint venture took a massive hit to its revenues, though Nortel noted that the 2008 first quarter was a particularly strong one for that particular business due to the completion of a large deal. Nevertheless, a 66 percent drop in sales is calamitous and wasn't helped by a significant reduction in the sale of 3G mobile gear and the impact of currency exchange movements. (See JV Helps Nortel Bust Q1 Estimates.)

The Enterprise division suffered a bigger blow in percentage terms, with Nortel identifying "decreased customer spending and decision-making deferral due to the economic conditions and the uncertainties created from our Creditor Protection Proceedings" as the main stumbling blocks. The Enterprise division is the only one to incur an operating loss (a significant $128 million) in the first quarter.

Still, in a statement, Nortel CEO Mike Zafirovski says Nortel's on the right course, given its circumstances: "We have made the necessary structural decisions to give Nortel the ability to optimize value, and preserve innovation platforms and employment to the greatest extent possible." — Ray Le Maistre, International News Editor, Light Reading

inauniversefarfaraway 12/5/2012 | 4:04:38 PM
re: Nortel Stays the Course, Declares Victory

With these drops in revenue and hope, no doubt there must be more bonuses for executives at Nortel. The sales staff also needs bonuses to encourage them in these tough times.

Since this company can only reward bad behavior, let's do it like it was going out of style.

Even though this is much belated, somebody had to say it.

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