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Follow UsTORONTO: Nortel Networks Corp., reporting shrinking sales and a $3.5 billion
loss in the third quarter, said on Thursday that demand for its
telecommunications equipment was still hard to predict, although it was showing
signs of hitting sustainable levels.
Nortel, which has seen its business erode on sagging demand from network
carriers, said losses, including all charges, in the third quarter ended Sept.
30 were $3.47 billion, or $1.08 a share. This is far bigger than a loss of $586
million, or 17 cents a share, in the year-ago period.
"While we believe we are beginning to see early indications that capital
spending by service providers is approaching sustainable levels, it still
remains difficult to predict," Nortel's chief financial officer and
soon-to-be chief executive Frank Dunn said in a statement. "I don't think
anybody should assume that there will be an uptick in the fourth quarter."
Nortel said it would not provide financial guidance for the fourth quarter of
2001 or for next year, as the effects of the September 11 attacks on the United
States are still unknown, and the US economy remains very sluggish.
Sales of optical long-haul equipment were the hardest hit, with the company
writing down $750 million of obsolete inventory, while revenues for wireless
network gear rose 15 per cent on a year-over-year basis.
Restructuring efforts that will see the company's workforce shrink to 45,000
employees, or less than half 2000 levels, will be completed by the end of
October, and should result in $4 billion in annual savings starting at the
beginning of fiscal 2002, said Nortel.
"There is a feeling that management is now able to at least get a feel
for what earnings are going to be like and manage to that business level. It
generally means that the downturn in the business is nearing its end. That
doesn't mean you see an uptick yet," said Tim Ghriskey, a senior partner in
investment management firm Ghriskey Capital Partners.
Ghriskey said Nortel's business continues to suffer from excess inventory,
which is exacerbated by heavy discounting of prices by competitor Lucent
Technologies. Also, incumbent phone firms are no longer under pressure to
quickly build out their networks as smaller rivals fall into bankruptcy.
Nortel's losses from continuing operations, before charges, were $854
million, or 27 cents a share. The pro-forma net loss from continuing operations,
including all incremental provisions and charges, was $2.18 billion or 68 cents
a share.
Analysts polled by Thomson Financial/First Call were expecting, on average,
operating losses excluding charges of 28 cents a share and revenues of $3.5
billion.
Nortel warned in October that third-quarter sales would come in at $3.5
billion, with a loss, excluding charges, of about $910 million, or 28 cents a
share. Including charges, it said losses would be $3.6 billion, or $1.13 a
share.
Revenues in the quarter sagged to $3.7 billion, from $6.7 billion. That is a
level that Nortel has said can produce profits once all restructuring is
finished, and is higher than earlier guidance.
"Despite the fact that the US economy is really really sluggish, revenue
levels are holding up reasonably well, and the aftermath of Sept. 11 is putting
more traffic on the networks than ever before," said Nortel's outgoing
chief executive John Roth in a conference call with investors.
Shares of Nortel closed up eight Canadian cents at C$9.33 on the Toronto
Stock Exchange on Thursday. The stock is now down 93 per cent since the
beginning of the year as investors remain pessimistic about its prospects.
Nortel said that, despite the current industry correction, its balance sheet
is well positioned with $3.35 billion in cash and cash equivalents, up
considerably from $1.9 billion at the end of the June quarter.
Debt levels, on the other hand, ticked up 16 per cent to $5 billion, in line
with analyst expectations, while the company said it paid off over $1 billion in
short-term debt.
(C) Reuters Limited.