Nortel Networks Ltd. posted a third-quarter net loss of $105 million, or 2 cents per share, less than what was expected after the mayhem of firing senior executives, correcting numbers, hiring new management and settling a lawsuit brought on by the hiring of incoming chief executive Mike Zafirovski.
The company cut its net losses by 60 percent compared to the year-ago net losses of $259 million, or 6 cents per share. Nortel’s revenues of $2.66 billion were up 22 percent compared with the year-ago revenues of $2.18 billion, and the company reported a cash balance of $3 billion.
Nortel’s revenues came in as expected except for a weak showing in wireless revenue as CDMA sales slowed, according to UBS Investment Research. Nortel reported revenue in its Carrier Packet Networks of $754 million, up 41 percent from a year ago, while its Enterprise Networks revenue was $685 million, up 16 percent from a year ago. GSM and UMTS Networks made $674 million, up 24 percent from a year ago, but CDMA Networks revenues came in at $539 million, up only 5 percent from a year ago.
“Our results demonstrate solid progress in our next-generation businesses including 3G Wireless, VoIP and metro-optical, and recent announcements show early momentum from execution of our Asia strategy with our joint venture with LG (Electronic Co. Ltd.),” said Bill Owens, vice chairman and chief executive of Nortel. “As I come to the close of my tenure as CEO, I am pleased that Nortel can now move from this phase of stabilization with the foundation we’ve built over the last 19 months. I am confident that Nortel, with the leadership of Mike Zafirovski, is strong and ready to move forward and will continue to play to win.”
“For the full year 2005 compared to 2004, we expect revenue to grow in the range of 13 percent,” said Peter Currie, executive vice president and chief financial officer at Nortel. “We continue to expect gross margins to be in the range of 40 to 44 percent of revenue and operating expenses as a percentage of revenue to be approximately 35 percent by the end of the year.”
Nortel’s gross margin was 38 percent for the third-quarter and included an additional projected loss of about $71 million related to a 2004 wireless contract in India.
“This report was a great reflection on outgoing CEO Bill Owens, who stabilized the company and started the recovery,” said Jeff Kagan, a telecom and wireless industry analyst. “Now it us up to new CEO Mike Zafirovski to take the ball and run with it. The future of the company depends on it.”
Motorola Inc. confirmed that it settled its lawsuit with Zafirovski, and Nortel, clearing the way for Zafirovski to take the top seat at Nortel Nov. 15. as planned.
Motorola had alleged that Zafirovski’s move to Nortel was set to create a breeding ground for misappropriation of trade secrets and breaches of multiple non-compete, confidentiality and no-solicitation agreements Zafirovski signed with Motorola. The lawsuit sought an injunction to stop Zafirovski from joining Nortel for two years.
Under the settlement, Zafirovski must repay Motorola $11.5 million, which was part of his separation payment from Motorola. Nortel said it plans to fully reimburse Zafirovski for his repayment to Motorola.
Nortel said the terms of the settlement provide that Zafirovski cannot disclose Motorola trade secrets or confidential information. In addition, Nortel said that Zafirovski and Nortel have agreed to refrain from hiring or recruiting Motorola employees.
The settlement also includes restrictions until July 1 on Zafirovski’s communications with certain companies, some of which are Nortel customers, and limits his ability to advise Nortel on competitive strategy or analysis relative to Motorola.
“As the telecom marketplace goes through the major talk of reinventing itself, we will likely see more of this kind of issue,” Kagan commented. “Telecom companies who used to compete in single sectors are now finding they are competing in several sectors. This makes a potentially sticky situation out of many moves.”
