Nortel Networks Ltd. late last month restated its much delayed financial results for 2003, 2004 and the first nine months of 2005, though analysts seemed indifferent to the impact.
Daniel Longfield, industry analyst at Frost & Sullivan’s Wireless Group says Nortel’s restatements are of diminishing concern.
“As a potential investor or customer, it’s important to consider whether Nortel is having problems with its current financial reports,” said Longfield. “The value of this kind of information decreases over time, so it becomes less important.”
Longfield added that he thinks Nortel can turn things around financially by working on third-generation contracts with U.S. carriers as they continue rolling out data only networks. Longfield predicts that wireless Internet access could rival that of wireline within a few years, and said carriers would need to constantly add capacity to their networks to support the trend.
China’s 3G networks are not expected to turn into a windfall of sales for Nortel, said Longfield, as Huawei Technologies Co. Ltd. and L.M. Ericsson will likely dominate contract wins in China.
However, Longfield suggested that even with the Alcatel/Lucent deal, there are still too many companies that make networking equipment.
“Communications markets are so competitive-it’s a hard industry to make a profit from. The more competitors there are, the smaller the profits are, which is why consolidation is good for the industry players.”
Current Analysis recently pointed to Cisco Systems Inc. as a good dance partner for Nortel, citing Cisco’s strength in routers and enterprise products as being a complementary match for Nortel’s carrier experience, optical portfolio and global services offerings. The firm also recommends that Nortel seek to acquire Internet gearmaker Avici Systems Inc. before another company does so.
“There is no overlap with its existing product lines and the Avici core IP routing platforms are definitely carrier class,” noted Current Analysis. “Nortel has already affected a level of management integration into management system and has trained its staff in the support of the Avici platform, Nortel stands to lose out on all this investment (not insignificant) should Avici get acquired by someone else.”
Nortel’s results revealed $1.5 billion less in revenue than was previously reported. Earlier in April, the company had forecast a $1.2 billion lowering of its revenue for the period.
Nortel also posted 2005 fourth-quarter net losses of $2.3 billion from revenue of $3 billion, up from the same period in 2004 when the company reported net income of $102 million from $2.5 billion in revenue. The 2005 fourth-quarter results include a $2.5 billion litigation expense from settling shareholder class-action lawsuits.
The company reported 2005 net losses of $2.6 billion from revenue of $10.5 billion.
“The restatements have been completed and we have filed the company’s 2005 Annual Report on Form 10-K. I now look forward to completing our first quarter 2006 reporting and moving back to being a timely filer,” said Mike Zafirovski, Nortel’s president and chief executive officer. “Despite this delay, we have remained focused on our short term priorities of business transformation, integrity renewal, growth imperatives and on re-creating a great company, and I look forward to updating you on our progress in a planned mid-May business update.”
Only time will tell if the restatements serve as a fresh start for Nortel. With increased pricing competition among infrastructure vendors and Alcatel’s looming acquisition of Lucent, two of Nortel’s key rivals, the company will have to play hard to win. Zafirovski seems up to the challenge, having said he plans to narrow the company’s focus, producing products only in areas where Nortel can snare a number one or two market positions. Zafirovski also seems willing to reorganize Nortel’s management team at every level and has said the company is consistently in talks with other vendors regarding possible partnerships and merger deals.
Nortel said it plans to file 2006 first-quarter results by June 5.
