Earnings reports

Nortel Says It Sees Clearly Now

Nortel Networks Corp. (NYSE/Toronto: NT) claimed improved liquidity and run rates after the market closed today, even as it posted a sizeable net loss (see Nortel Reports).

Executives said they're now getting clear messages from carriers on their plans for capital expenditures over the next year. And while those messages point to ongoing reductions in spending, Nortel seems hopeful that it's on the straight and narrow path that will eventually lead out of the downturn.

"We are pleased with our progress. We believe our balance sheet positions us well for this economic environment," said Frank Dunn, incoming CEO, on a conference call with analysts tonight. Dunn, whose promotion from CFO to CEO was announced earlier this month (see Nortel Swings Axe, Switches CEOs), is set to take the helm November 1. Outgoing CEO John Roth was on today's call as well, acknowledging it as his last.

Nortel posted $3.7 billion in revenues from continuing operations, alongside a net loss from continuing operations of $3.47 billion, or $1.08 per common share. These figures compare with last quarter's $4.6 billion revenues and stunning $19.4 billion net loss (see Has Nortel Hit Bottom?).

On the plus side, the company wound up the quarter with $3.4 billion in cash and cash equivalents, partly as a result of its successful convertible debt offering in August and the successful writedown of debt (see Nortel Feathers Its Nest).

During the quarter, the company took charges galore, including a $750 million pretax loss for excess and obsolete inventory, mostly related to long-haul "optical inter-city" equipment that didn't sell. Also contributing to the net loss was $380 million "related to charges associated with certain third-party investements" and $767 million related to customer financing (down from $1.1 billion last quarter). There was also an $801 million restructuring charge associated with ongoing workforce reductions and plant closures and $223 million related to "the approximately 50 percent reduction in manufacturing capacity of [the] Photonics Components business."

Gross margin for the third quarter was about 25 percent, compared with 26 percent last quarter, and the execs said, when questioned, that this was probably the "low water mark" for the company.

They reiterated plans to cut Nortel's workforce and assets even further. And they stressed that despite the new clarity in customer relationships, uncertainty remains.

Customers may be ready to plan, but "that's not saying projects will turn into revenue next week," Roth said. Dunn was equally circumspect: "People are going to start getting their acts together, but we won't see a major uptick in the fourth quarter."

Still, the execs remained upbeat, stressing new contracts in key areas such as metro, packetized voice, and wireless.

Analysts questioned just how Nortel could be sure of the new clarity and stabilization it claims to see in customer relations. Wall Street also has balance sheet items under close scrutiny.

In an unadorned farewell to the market, John Roth reiterated support for Frank Dunn and held forth for a few minutes to the effect that the industry is moving as predicted to increased data capacity based on IP -- and he says Nortel is poised to move with it.

— Mary Jander, Senior Editor, Light Reading
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rafaelg 12/4/2012 | 7:42:06 PM
re: Nortel Says It Sees Clearly Now Yeap...
Going back to "feeding" the big carriers and build the outside...

It's funny how "they"(carriers) had the last laugh. Let the competition build all the bandwidth in the sky, but polute and stifle the last mile so the fledgling would gasp for air and eventually die. Subsequently, buy all the equipment at $1/lb...

Good plan.Very smart. I didn't see it coming.
Belzebutt 12/4/2012 | 7:42:05 PM
re: Nortel Says It Sees Clearly Now Good plan.Very smart. I didn't see it coming.

How dare you criticize the customer! They are always right.

Or something.
kcufde 12/4/2012 | 7:41:56 PM
re: Nortel Says It Sees Clearly Now i don't think nortel can survive, it all happened because of improper management and bad decison of acquiring companies, and literally killed Bay which was doing well.
in spite of this what else nortel can see clearly, only bottom of the pacific ocean it can see it now clearly
fruitloops 12/4/2012 | 7:41:54 PM
re: Nortel Says It Sees Clearly Now opticguy.

Bang on. Nobody talks about DMS cash cow but oh how right you are. Bessy is dry. Wireless, Optical, IP, or what have you, NT is losing market share. New products in pipeline are to few too late.

The 45k left behind are a mix. Some good ( who will leave when it becomes clear they are not getting a package ) and many others who talk a good game but deliver nothing and will continue to do so.

It looks to be a case of the blind leading the blind now.
opticguy 12/4/2012 | 7:41:54 PM
re: Nortel Says It Sees Clearly Now Having worked for NT for ten years, personally I think the chance that Nortel will survive as a stand alone company in this environment will be small, very small. They will have problems just to break even with current level of 45K of employees. Too few next generation products. Losing market share in almost all segments. The golden days of DMS sw cash cow is over. IP expertise at NT is ... almost zero. OC192 jackpot is one-in-a-century opportunity. Too many layers of managements/red tape will not turn around the company and make it more agile, IP-centric, right-angle turn vision from John Roth.
bramabull 12/4/2012 | 7:41:54 PM
re: Nortel Says It Sees Clearly Now As a relative newbie who has survived the rocket upwards last year and the fall back to earth this year, I can only hope there are enough people left at Nortel who have some faith and are willing to work through this downturn. I have been passing up opportunities elsewhere for (dare I say?) a feeling of loyalty. Am I crazy?
joe_average 12/4/2012 | 7:41:52 PM
re: Nortel Says It Sees Clearly Now bramabull wrote: "I have been passing up opportunities elsewhere for (dare I say?) a feeling of loyalty. Am I crazy?"

My vote is crazy. Nortel has demonstrated quite clearly that they are not loyal to their employees. Why would you exhibit loyalty to the company?

Remember - you only get what you do for yourself. No one owes you anything.

I wish you good luck in the future and hope that you make the right decision for yourself.
umustbejokin 12/4/2012 | 7:41:51 PM
re: Nortel Says It Sees Clearly Now NT will somehow manage to go on without you. Sorry to bust your ballon (is is it a pustule) by there is plenty of IP expertise, product development, marketing & sales are focused on things that ARE generating revenue (not DMS) and there has been a steady stream of wins which will continue. Mgmt said during earnings call that RFP activity is picking up & customers are defining their spending plans going forward. Call was quite positive. Go get a new job and move on with your life. Sorry if you got stiffed by the changes, but life goes on and so will NT.
opticalsalesguy 12/4/2012 | 7:41:50 PM
re: Nortel Says It Sees Clearly Now Tough times to be sure. From inside Nortel it is hard to fathom if management is focused on a plan that will lead to profits and a future, or if they are trying to package Nortel for sale. Certainly the pieces that have been sold or identified as for sale, aren't core to our business. On one hand, we are winning some important deals, SBC - Optical Ethernet, Qwest - VoIP, Cingular - ATM backbone just to name a few recent ones. On the other hand, more than half of the folks I am aware of who were cut in the last two weeks, seem to have been cut because they were on high compensation plans. Most of them fell into the the best and brightest catgory. It is hard to see how there would be a good recovery down the road if this pattern was used throught the company to determine who got the axe. I made it through the latest cuts, and plan on sticking things out for at least another 6 months. As for the idea that a package may not be available in the future, I'd rather be employed now with a chance of success in the future, than out the door two weeks ago, with a 14 week pay package at a time when the job market is pretty bleak for technology sales people. I assume Nortel will be in business past the middle of January and if that is the case I will be ahead of the game by staying.

umustbejokin 12/4/2012 | 7:41:49 PM
re: Nortel Says It Sees Clearly Now Dude;
Time will tell whose right
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