Nortel Narrows Its Losses

The networking vendors faces a difficult road to profitability as revenues continue to fall.

Nortel Networks Corp. continued to narrow its losses in the second quarter, though the networking vendors revenues continued to fall.

Net losses for the three months ended June 30 were narrowed to $697 million, or 20 cents per share, compared with $19.4 billion, or $6.08 per share, in the second quarter a year ago. The net loss also was an improvement from the first quarter when Nortel reported an $841 million loss.

Second quarter revenues were $2.77 billion, a 40 percent drop from $4.61 billion in revenues for the same quarter a year ago. They also were off from the $2.92 billion in revenues for the first quarter of 2002.

President and CEO Frank Dunn said his goal is to return the Brampton, Ontario, company to profitability over the next 12 months. But he also expected a continued tough market through 2003 as capital budgets of customers, particular telecommunications carriers, remain weak.

"Nortel has made significant progress over past 90 days in repositioning company in a challenging environment," Dunn said of the results.

One of those steps came in May when the company announced it was trimming 3,500 jobs in its optical long haul business and looking to sell the optical components part of that business outright. Those cuts brought down its total number of employees to 42,000.

Dunn said the company must continue to consider ways to shift its focus as the market changes.

"We have complicated this business way too much because we are too broad," he said.

Also this week, Nortel on Wednesday announced the appointment of Douglas Beatty as chief financial officer. Dunn had been acting as CFO in addition to CEO since February after Terry Hungle resigned over violations of company policies in trading Nortel stock. Beatty has been the companys controller since 1999.

Nortel ended the second quarter with $4.9 billion in cash, which included proceeds for a recent $1.5 billion equity offering. That was an increase from a balance of $3.1 billion at the end of the first quarter of 2002.

Revenues fell the most in Nortels optical networks business, down 46 percent compared to a year ago. The metro and enterprise network space was off 39 percent while wireless networks revenues fell 31 percent compared to the same quarter in 2001.

In response to analysts on a conference call, Dunn said that revenues in the enterprise portion of the metro and enterprise networks group fell in the single digits. Notably, sales of its Meridian PBX line were slower than expected, he said. "I dont think were losing market share, but the market isnt robust," he said.