Nortel Details Q3 '04 Loss

Nortel Networks Ltd. (NYSE/Toronto: NT) did finally release its results for the third quarter of 2004 on Friday at 9:59 Eastern and, yes, the company missed a few projections, again showing how difficult it is finding the financial recovery process (see Nortel Files Q3 Results and Nortel: Financial Stuff Really Complex).

The equipment vendor -- mired in financial restatements, shareholder suits, and an executive bonus scandal -- reported $2.18 billion in revenues for its third quarter of 2004, down from the $2.27 billion it had guessed in December (see Nortel Provides Estimates).

Its gross margins prediction was slightly short. Nortel previously estimated it would report 37 percent gross margins, but it could only manage 36 percent.

The story was much the same for its cash projection. Nortel predicted it would have $3.40 billion in cash for the third quarter of 2004, but reported $3.39 billion.

Nortel's loss per share estimate was right on, though. Nortel lost $259 million, or 6 cents a share, for the third quarter of 2004, compared to its profit of $131 million, or 3 cents a share, from the (restated) third quarter of 2003.

For the nine months ended September 30, 2004, Nortel experienced double-digit percentage drops in revenues for its wireline and optical networks business segments. But, its wireless division grew a whopping 21 percent during the same period.

Table 1: Nortel's Product Segment Revenues
Revenues for the Nine Months Ended 09/30/04 (in millions) Revenues for the Nine Months Ended 09/30/03 (in millions)
Wireless Networks $3,560 $2,953
Enterprise Networks $1,703 $1,650
Wireline Networks $1,262 $1,433
Optical Networks $680 $865
Other $8 $26

Also, for that same nine-month period ended September 30, 2004, Nortel revealed why it has been so vocal about its Asian competitors lately (see Big Vendors Sidestep Merger Rumors). Nortel's results show it increased revenues across all geographies compared to 2003, with the exception of the Asia Pacific region, where it sustained a 9 percent revenue drop.

Table 2: Nortel's Revenues By Geography
Revenues for the Nine Months Ended 09/30/04 (in millions) Revenues for the Nine Months Ended 09/30/03 (in millions)
U.S. $3,653 $3,483
Europe, Middle East and Africa $1,820 $1,680
Canada $413 $389
Asia Pacific $904 $992
Caribbean and Latin America $423 $383

Nortel announced Friday it would hold its 2004 annual general meeting (AGM) no later than June 30 (see Nortel Finally Files Q3). The company now plans to hold a combined 2004/2005 AGM "as soon as reasonably possible." It also plans to report its results for the full year 2004 sometime next month (see Nortel Provides Latest Update).

But, as the 550+ word legal disclosure following Nortel's press release tells us, we really shouldn't be surprised if the company runs late again.

— Phil Harvey, News Editor, Light Reading

paolo.franzoi 12/5/2012 | 3:22:34 AM
re: Nortel Details Q3 '04 Loss

You guys going to report on the $300M fine that Time-Warner just paid?

Does it seem to you all that everywhere you scratch finances from the bubble era you find fraud?

lightman60 12/5/2012 | 3:22:32 AM
re: Nortel Details Q3 '04 Loss Anyone have any insight on the persistent rumour I keep hearing that Nortel is projected to go bankrupt in 5 years? I really hope this is not the sake of high tech in canada.
dljvjbsl 12/5/2012 | 3:22:31 AM
re: Nortel Details Q3 '04 Loss There is also a persistent rumour that a Chinese company wishes to take over Nortel to obtain the R&D talent. A professor was interviewed on Canadian televions and stated that he had been hired as a consultant as part of that effort
Belzebutt 12/5/2012 | 3:22:30 AM
re: Nortel Details Q3 '04 Loss There is also a persistent rumour that a Chinese company wishes to take over Nortel to obtain the R&D talent.

That's interesting. So while American companies are hireing in China, Chinese companies want to hire in America?
andybryant 12/5/2012 | 3:22:27 AM
re: Nortel Details Q3 '04 Loss The Chinese don't need to take over Nortel to get the talent. More than 2/3rds of us are already outside Nortel.
dodo 12/5/2012 | 3:22:26 AM
re: Nortel Details Q3 '04 Loss "The Chinese don't need to take over Nortel to get the talent. More than 2/3rds of us are already outside Nortel."

That's why that instead of hiring HR specialists, Nortel has come up with a new lingo for HR personel : TALENT DELIVERY REPRESENTATIVE OR TALENT STRATEGIST.
Guess that apart from HR functional skills, they will need war room or birth delivery experience :-)
Machavelli 12/5/2012 | 3:22:25 AM
re: Nortel Details Q3 '04 Loss Bankruptcy is a distinct possibility, unless Owens cleans up his executive management team quickly. He needs to get rid of all the guys that have been at the company for the last 20 to 40 years. Most are engineers with no experience outside the company nor with any business skills (or education). His hiring of Daichendt as president is a good start.

Nortel will not win the battle of selling products at the best prices. This requires efficent management, which Nortel does not have it. The Chinese with eat Nortel alive in this area.

Nor will Nortel win the battle of providing the best value at current prices. This requires serious R&D spending.

Here is an example of both these deficencies(ineffective management and R&D spending cuts) as stated by the "brillinat" Brian McFadden:

BANFF -- Nortel Networks Corp. is scaling back spending on research and development this year as the embattled telephone-equipment maker responds to pricing pressure in the industry.

The company's R&D costs are too high at about 19 per cent of revenue based on 2003 results, Nortel chief technology officer Brian McFadden said in an interview at an RBC Dominion Securities Inc. conference. He said technology companies have traditionally spent a smaller proportion of revenue on R&D.

Business is getting more challenging for Nortel and its rivals. The number of customers in the United States is dwindling amid a flurry of consolidation among phone carriers in that market. And new phone equipment makers from China such as Huawei Technologies are gaining ground worldwide. Nortel chief executive officer Bill Owens is slashing jobs and reducing real estate to lower the company's operating costs in order to compete.

Nortel also faces its own problems. It's spent the past year dealing with an accounting scandal that the company acknowledged crimped its business performance in the third quarter of 2004.

It is still working on compiling full-year results for 2004.

"I want to spend less," Mr. McFadden told an audience at the conference. "That's not because I like spending less on R&D, it's because the business reality is you have to spend less this year than you did last year." Still, Mr. McFadden told the Banff conference that Brampton, Ont.-based Nortel will be careful in its cuts to R&D.

"I still feel that we are in a position where we will spend more as a percentage of sales than our competitors and I think Bill has been quite clear on that," Mr. McFadden said. "That's on purpose. You can cut R&D very quickly. You cannot create the knowledge that you cut in R&D because when you cut R&D you basically cut people."

No-tell 12/5/2012 | 3:22:16 AM
re: Nortel Details Q3 '04 Loss Five years is a meaningless time period in the business world. Five years ago, there could have been a post on LR that asked, "Will Nortel dominate the world in 5 years?" And we all would have debated yes or no for a week.

The company has $3B cash on hand and isn't burning through it very quickly. Yes, they have lots of debt maturing over the next 5 years, but they likely will be able to refinance that--even if the rates are significantly higher due to their financial weakness.

Plus, they have tons of assets--mainly intellectual property rights--that could be sold piecemeal to raise some money.

The biggest unknown is all the shareholder lawsuits and the potential for liabilities associated with them. But by the time those play out, the world may be very different and NT may be on top again...or they could be bankrupt.
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