News Story
Nortel sees steeper Q1 loss on weak evenues
By Ottawa Business Journal Staff
Tue, May 16, 2006 8:00 AM EST
Nortel's Carling Avenue campus
Nortel Networks is forecasting a wider loss in the first quarter of 2006 and weak revenues for the quarter, as it recovers from a series of financial restatements.
In a lengthy conference call with analysts, the company said it expects Q1 revenue to be "flat to slightly down" and a "slightly higher loss" compared to the first quarter of 2005.
For the year as a whole, Nortel sees revenue momentum building.
"We expect strong revenue momentum for the rest of 2006, resulting in high single digit growth for the full year 2006 compared to 2005. For the full year, we expect gross margin to be around 40 per cent as a percentage of revenue and operating expenses to be flat to up slightly from 2005, with foreign exchange and growth related expenses off-setting productivity and efficiencies," Mr. Currie said in a statement.
At the same time, president and CEO Mike Zafirovski announced a new business focus on the super-fast Ethernet networks that are essential to handling the coming growth of bandwidth-hungry IPTV services.
The new strategic initiative – dubbed Metro Ethernet Networks – will be led by Philippe Morin, the former general manager of Nortel's optical division.
"With IPTV, instant messaging and other applications evolving quickly, service providers will face huge bandwidth challenges across all networks – wireless, wireline and cable. Metro Ethernet Networks is the first step in getting Nortel in front of that curve to win in this critical new space in the market," said Mr. Zafirovski.
Much of the conference call was devoted to Mr. Zafirovski's overhaul of Nortel in the six months since he took over.
He said changes in management are 90 per cent complete, although the company has still to appoint a chief technology officer. He described the new recruits as managers who are "betting their careers" on Nortel, and pointed out that only three have been in their current positions for a year or more.
The company continues its cost-cutting efforts, with a target of US$1.5 billion over the next three years. He promised steady improvement, cautioning once again that putting Nortel back on track is "a marathon, not a sprint,"
"We're making real progress in a number of our businesses," Mr. Zafirovski told analysts.
He described the optical sector as a "major force" and said he will soon elaborate on Nortel's investment in WiMax technology.
Nortel expects to be in full compliance with its financial reporting obligations by the week of June 5, when it is due to report its Q1 results.
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