Nortel posts small loss on weaker revenue

Revenue slipped in the second quarter of 2003 for Nortel Networks Corp., but the telecommunications equipment vendor’s net loss narrowed to US$14 million, and it broke even in terms of per-share earnings, the company announced Thursday.

Nortel had worldwide revenue of $2.23 billion for the quarter, down from $2.77 billion in the same quarter last year and $2.4 billion in the first quarter of 2003. However, the company rebounded from a loss of $697 million, or $0.20 per share, in last year’s second quarter, according to a company statement.

Analysts had expected Nortel to break even in earnings per share with revenue of about $2.4 billion. Along with most of the telecommunications equipment industry, Brampton, Ontario-based Nortel in recent years has struggled with a steep decline in capital investment by service providers.

The net loss is based on U.S. Generally Accepted Accounting Principles (GAAP) and includes a $37 million charge for amortization of acquired technology and deferred stock option compensation associated with acquisitions. It also includes $5 million of special charges for restructuring and a pretax benefit of about $51 million related to customer financing provisions.

Revenue from the enterprise networks business fell in all areas of the world compared to both the first quarter of this year and the year-earlier quarter, according to the company statement. Compared to a year earlier, optical revenue was down in every region but Asia-Pacific, and Nortel’s wireless business also slipped in the U.S., Canada, Central America and Latin America. While the company sees momentum in the market for metropolitan-area optical deployments, the long-distance optical market is very slow, Nortel officials said on a conference call following the earnings release.

Nevertheless, Nortel President and Chief Executive Officer Frank Dunn during the conference call expressed cautious optimism for the next 12 months. Nortel’s business model is now stable following the precipitous drop in the telecommunications business in recent years, and customers are going ahead with investment plans.

“People are now gearing up to get on with life,” Dunn said. The main question now is at what pace they will carry out those plans, he added.

“There’s a higher probability of upside surprises in the back half of the year than downside,” he said in answer to another question.

One bright spot is the second wave of 3G (third-generation) mobile data network building, Dunn said.

“The activity in 3G in Europe is very active,” he said. “We expect to see a significant amount of networks turned up in the next 12 months.” Though Nortel missed out on building the first wave of 3G networks, such as those built by Hutchison Whampoa Ltd., it will play a significant role in subsequent deployments, he said.

The company’s wireless business already has grown strongly in the Asia-Pacific region, with 49 percent revenue growth in the second quarter compared to a year earlier, with highlights including growth in China, Taiwan and Australia, officials said.