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Nortel Keeps to Profit Path

Nortel Networks Corp. (NYSE/Toronto: NT) execs spent as much time explaining an accounting restatement as in touting another quarter of modestly profitable earnings in the company's third-quarter report tonight (see Nortel Posts Small Q3 Profit).

For the quarter at hand, Nortel reported net earnings of $179 million or $0.04 per common share, and gross margin of 52 percent, busting well beyond analyst estimates. Revenue was slightly lower than the last quarter -- $2.27 billion compared with $2.33 billion logged in June (see Nortel Still Profitable in 2003).

Nortel execs said they expect Nortel to close 2003 with a full-year profit for the first time in six years.

The only tricky part of the quarter came in the announcement of some complicated restatements of past books. A review of the company's assets and liabilities undertaken earlier this year has turned up errors in the books that will result in restatement of Nortel's financial results for 2000, 2001, 2002, and the first two quarters of 2003.

Details won't be disclosed in full until filings are complete in mid-November, but Nortel execs say about $900 million of liabilities previously included in the June 30, 2003, quarterly report must now be reallocated "into prior periods." Also, Nortel has found that $92 million in revenue for the first two quarters of 2003 was incorrectly recognized and needs to be "deferred to later periods."

Analysts on the company's conference call seemed unconcerned with the financial impact of the restatements, which include reductions in net losses for 2000, 2001, and 2002 and revenue adjustments amounting to about 2 percent of the $60.7 billion reported in those years.

Execs were cautious in describing the progress of separate business segments and the industry overall. In general, CEO Frank Dunn waxed positive on sales of wireless gear and packet voice equipment. Enterprise sales seem to have revived a bit since last quarter. But the optical sector is down, and Dunn was clear that the recently announced OME 6500 was a lone bright spot (see Nortel Gets Edgy).

Over the next couple of years, Dunn said carriers won't increase spending to former levels. And what they do spend will be focused on new technologies, such as packet voice, 3G wireless, and optical technology that's more flexible than current approaches. Further, Nortel sees its future not in hardware but software. "Our business is moving to a software business," Dunn said.

— Mary Jander, Senior Editor, Light Reading

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Machavelli 12/4/2012 | 11:19:16 PM
re: Nortel Keeps to Profit Path Frank Dunn is as incompetent as Ken Lay is crooked when it comes to stating their company's financial results.

Frank was the CFO in 2000 and 2001, then CEO in 2002 to the present. How did this idiot (supposedly well versed in accounting practices) let this mistake happen 5 times ? Once is forgivable as an honest mistake, 5 times is the epitomy of incompetence. Couldn't the board of directors find a better choice for CEO than this loser? I am glad I am fully divested of Nortel stock.

"M"

dljvjbsl 12/4/2012 | 11:19:16 PM
re: Nortel Keeps to Profit Path Frank Dunn has identified 3G as a technolgy which will be of interest to Nortel in the future. This puzzles me. 3G has proved to be an economic disaster. it is a technolgy with very limited customer benefit. It is a technolgy that is being outperformed by competing technologies such as WiFi both is performance and cost. Yet the implicaions from the reports of the Nortel conference call is that Nortel will continue to invest in it.

The question is 'Why?' Customers have rejected this gold plated technolgy. Providers are going bankrupt and returning their licences. Why should Nortel or any other company for that matter continue to invest in this technological quagmire?
opticalulcer 12/4/2012 | 11:19:15 PM
re: Nortel Keeps to Profit Path Rumour has it another round of whackage is underway, again in optical networks...
Machavelli 12/4/2012 | 11:19:14 PM
re: Nortel Keeps to Profit Path Opticalulcer,

It is not a rumor, it is fact. I have several friends in the Optical division that were told by their management that there are going to be 20% cuts across the board very soon (probably by next week). And historcially, when they say 20%, the actual number, after the blood bath is over, is probably closer to 30%.

"M"
dodo 12/4/2012 | 11:19:13 PM
re: Nortel Keeps to Profit Path "Further, Nortel sees its future not in hardware but software. "Our business is moving to a software business," Dunn said. "

Remember quite well back in 1999 when JARoth said that there is no future in S/W (though some work were being outsourced from India at that time).He was listening too much to his fasttrack MBAs who did NOT understand technology per se ( except running to the secretaries to get the latest PDAs.)

Good excuse (some would say strategy) now to keep reducing staff in NA and send all that s/w business to India.

Live and learn :-)
OpticalPhonon 12/4/2012 | 11:19:12 PM
re: Nortel Keeps to Profit Path What is wrong with you people???

The company showed quite positive financial results, a significant profit (relatively speaking), and growing sales overall. But then again, you are the same people that slam Nortel no matter what it does. You are glad that you divested your stocks a long time ago and Frank Dunn is not too bright, eh? Your opinion is subject since the stock has jumped over 600% in 2003 since Frankie took over... wanna buy some swamp land with your money instead? You are likely graduates from the dave77777 school of ineptitude who bashed Nortel and then admits he has invested in the company at the same time...
dodo 12/4/2012 | 11:19:12 PM
re: Nortel Keeps to Profit Path Optical Phonon

Got the wrong message to flame :-)
Machavelli 12/4/2012 | 11:19:12 PM
re: Nortel Keeps to Profit Path Dodo,

Admittedly, the HW business is a terrible business to be in because it very resource intensive and profit margins are very low.

The SW business is probably the best business in the world to be in because once a product is developed it costs pennies to reproduce it. Look at the 10 richest people in America; The top two are Bill Gates & Paul Allen (both of Microsoft) and another in the top 10 is Larry Ellison (of Orcale).

As far as Nortel is concerned, how are these idiots going to focus on the SW business alone; their products are so intricately intertwined with HW, you can only develop so much new SW before you need new HW to support it.

I guess a lot of companies are trying to get their focus away from HW; even Lucent is pushing their services division heavily (actaully not a bad idea IMO).

More SW jobs will go to India and China under the current adminstration. This will hurt Nortel alot, because they keep forgetting about the prevalent "America First" buying policy in affect in the USA (a good idea IMO). They already lost business to government customers (like the DOD) and major RBOCs (like Verizon).

"M"
dodo 12/4/2012 | 11:19:12 PM
re: Nortel Keeps to Profit Path "The errors cover the period in which Nortel was adjusting to a steep fall in demand for its products and embarked on a restructuring that slashed the payroll by about 60,000, to 35,500. Some of the provisions related to the restructuring had been overstated, Nortel said."

waverunner 12/4/2012 | 11:19:11 PM
re: Nortel Keeps to Profit Path Mach,

This is going to be more an objective and less of a reality. Yes, they have outsourced H/W manufacturing, Nortel still drives the H/W development and vendors just follow orders. But yes, the dirty part of mfg has largely been handed off. In anycase, this is nothing new, this has been a trend for the last 8 years. Who makes up an R&D office, 5 software guys for every H/W girl.

Also, Frank is doing a great job, and I am topping off with another 500 shares this morning.



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