Losses at Nortel continue through fourth quarter

Bankrupt Nortel Networks Corp. ended 2008 with $5.7 billion in losses, as the Canadian giant works on a plan to restructure in the face of increased competition and a weakened global economy.
Adding to Nortel’s overall performance for 2008 was a fourth quarter where the company posted $2.1 billion in losses, a 15% decrease from the company’s performance in 2007.
“At every level, our employees are working hard in an extremely difficult environment to deliver on our customer commitments and drive our business forward,” Mike Zafirovski, Nortel CEO and president, said in a statement. “Work is taking place across Nortel to develop a comprehensive plan to restructure Nortel into a more focused, leaner and more competitive company.”
In response to the company’s latest performance, Technology Business Research Inc., a high-tech research and consulting firm, said Nortel’s decline will continue this year and may even get worse.
“TBR believes Nortel’s bankruptcy has cost the company significantly, as enterprise and carrier customers question its ability to meet long-term obligations and fulfill contracts while it deals with its ongoing restructuring,” according to the company.
Despite the tough bottom line for Nortel, Zafirovski said the company is making progress.
“Strong operating performance focused on customers, costs and cash resulted in meeting or exceeding guidance for management operating margin and cash,” he said. “The management operating margin was the highest since 2000, key customer performance and quality metrics were also at multi-year highs, and our fourth quarter operating expenses were down 30% from the prior year.”
Nortel filed for bankruptcy in Canada, the United States and Europe in January. The move to protect itself from creditors culminated a downward spiral that started last fall when Nortel posted $3.4 billion in losses in the third quarter.
Last week, Nortel announced it was cutting 3,200 jobs. The cuts are in addition to 1,200 jobs the company said it would eliminate last fall. The company’s stock has been suspended from the New York Stock Exchange.
Nortel has been given an extension by a Canadian court to formulate its restructuring plan by May 1. Zafirovski has said the plan will help the company regain its financial footing.
The company has tapped CFO Pavi Binning as its chief restructuring officer. Binning will report directly to Zafirovski.
Revenues for 2008 totaled $10.4 billion, which is a decrease from $10.9 billion the company posted in 2007. For the fourth quarter, Nortel had revenues of $2.72 billion. For the same quarter in 2007, Nortel posted revenue of $3.2 billion.
Accounting for a significant portion of the company’s loss is a non-cash write-down of goodwill of $1.2 billion and a non-cash charge of $951 million in the fourth quarter to increase the valuation allowance against deferred tax assets.
Nortel finished the year with $2.4 billion in cash.
The company has yet to sell off any of its business divisions but has received offers for its Metro Ethernet unit. However, the company did announce earlier this year that it was eliminating its WiMAX division and a partnership with Alvarion Ltd.
According to TBR, Nortel will attempt to hold onto its Enterprise Solutions business unit and possibly its Metro Ethernet division. However, TBR said the company may ultimately be pressured to see its carrier business.
“Nortel faces a clear uphill battle to rebuild any of these businesses and return them to profitability anytime soon,” according to TBR.
Nortel was also dealt a blow last month regarding its products for 4G Long-Term Evolution. Analysts said Nortel’s inability to land a contract with long-time partner Verizon Wireless for the buildout of its LTE network will have a significant impact on the company. Verizon’s goal is to launch commercial LTE sometime next year.
Analysts said Nortel is still in play to land contracts for the 4G technology with T-Mobile International and wireless provides in Asia.
Zafirovski remains optimistic about the company’s future.
“As Nortel continues to work through a complex global restructuring of its business, our focus remains firmly on maintaining high customer service levels for on time delivery, network stability and responsiveness,” Zafirovski said in a statement. “In parallel, appropriate investments continue to be made in order to deliver the R&D and technology leadership that our customers require.”
Article updated March 2 to include additional analysis.