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Nortel Shrinks Again

Third-quarter numbers show another significant decline in revenues at Nortel, with the up-for-grabs optical business shrinking by 26%

November 17, 2009

3 Min Read
Nortel Shrinks Again

By the skin of its teeth, Nortel Networks Ltd. made its November 16 deadline for reporting its third-quarter financials, issuing its announcement late Monday. And no wonder it was delayed: To say the news release is complex wouldn't do it justice. (See a large chunk of it: Nortel Reports Q3.)

The bankrupt Canadian vendor reported revenues of $1.05 billion, though that didn't include revenues from its EMEA operations (for particular accounting reasons) or its "discontinued operations" -- the Enterprise Solutions (ES), Nortel Government Solutions (NGS), and DiamondWare businesses – which have been acquired by Avaya Inc. (See Avaya's $900M Bid Wins Nortel Auction.)

The net loss for the quarter, including one-time charges, totaled $508 million.

Behind the thick fog of accounting methodologies, though, one thing is clear: Nortel's business is shrinking -- by nearly 25 percent compared with a year ago, in fact.

That calculation comes from a comparison of Nortel's "Segment Revenues," as shown in the table below:

Table 1: Nortel Segment Revenues, Q3 2009

In millions of dollars

Q3 2008

Q3 2009

Year-on-Year change

Wireless Networks

$805

$663

-18%

Carrier VoIP and Application Solutions

$182

$208

+14%

Metro Ethernet Networks

$398

$295

-26%

LG Nortel (joint venture)

$211

$103

-51%

Other

$(1)

$2

+150%

Total Segment Revenues

$1,595

$1,271

-20%

Discontinued Operations

$724

$475

-34%

Overall Total

$2,319

$1,746

24.7%

Source: Nortel





There are a few things worth noting about the numbers. First, the Wireless Networks segment still includes the CDMA business that's been sold to Ericsson AB (Nasdaq: ERIC). The good news for the Swedes is that Nortel says CDMA system sales are about level with a year ago, while revenues from the GSM and UMTS units, which are still without a named buyer, experienced "declines." (See Ericsson Completes Nortel Asset Buy and Ericsson: Why We Want Nortel's Wireless.)

"Discontinued Operations" represents the businesses acquired by Avaya, so the bad news for that company is that revenues are down 34 percent from a year ago.

And then there's the Metro Ethernet Networks segment, which was due to go under the hammer last week. That auction was delayed, and any new bids, to go alongside the opening gambit from Ciena Corp. (NYSE: CIEN), are due in today, with the auction now expected to take place within the next week. (See Nortel Postpones Optical Auction and ITU: Ciena Bids $521M for Nortel's MEN.)

That business line has also suffered, with revenues, at $295 million, down 26 percent from the same period last year. Nortel said the decline was due in part to "lower revenues from certain customers," which is, quite frankly, what you'd expect for a bankrupt supplier in a capex-constrained market.

The only bright spot was Nortel's Carrier VoIP and Application Solutions segment, which recorded a 14 percent increase in revenues to $208 million. Nortel said this was due to "contract deliveries and project completions" during the quarter, which suggests that growth may not be sustainable.

— Ray Le Maistre, International News Editor, Light Reading

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