Nortel lost $5.8 billion in 2008

Network World Canada – Nortel Networks' revenue plunged 15 percent in the fourth quarter last year compared to the same period in 2007, ending a year in which it lost CDN$5.799 billion (US$4.544 billion) and underlining the telecom equipment maker's financial straits.

The Canadian company, which has been in bankruptcy protection since Jan. 14, reported Monday that in the quarter it lost CDN$2.13 billion after pulling in CDN$2.72 billion in revenue, largely because it had to write off CDN$2.19 billion in reduced goodwill and tax losses in the quarter.

On the other hand, fourth quarter sales were up by $400 million over the third quarter of 2008. That impressed telecom consultancy SeaBoard Group managing director Iain Grant. "It's quite a testament to their ability to move product," he said in an interview.

For the fiscal and calendar year, Nortel revenues were $10.42 billion, a drop of 5 per cent, compared to 2007, with the company blaming buyers reducing or putting off spending.

Because it's restructuring, the company didn't hold the usual end of the year phone briefing with financial analysts on the annual financial results. However, in a press release company president Mike Zafirovski tried to put a positive spin on the results, citing "strong operating performance focused on customers, costs and cash [that] resulted in meeting or exceeding guidance for management operating margin and cash." The company ended the year with $2.4 billion in cash.

"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 percent from the prior year," he said. Management operating margin was 11 per cent in the fourth quarter of 2008, compared to 7.6 per cent for the fourth quarter of 2007 and 0.7 per cent for the third quarter of 2008.

"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. In parallel, appropriate investments continue to be made in order to deliver the R&D and technology leadership that our customers require."

There was still no detail on the company's restructuring plan, other than to say chief financial officer Pavi Binning has also been named chief restructuring officer. Its first moves have been to make its divisions more autonomous by creating four business units, strike a deal to sell its application delivery lines and to lay off another 3,200 staff around the world.

Bankruptcy protection is a blessing and a curse for the company. On the one hand, Grant pointed out, it gives Nortel and creditors a cooling off period where there isn't a gun to the company's head. On the other hand, Zeus Kerravala, senior vice-president of enterprise research at the Yankee Group, noted it does make already jittery buyers leery of the company.

"This is the toughest technology economy we've seen in a long time," he said in an interview. "From the customers I've talked to, they're tending to err [when buying] to the safer choice. So if there's money to be spent, it's with the Ciscos [Systems], the EMCs and the IBMs, companies that everyone knows will be around for the long haul.

"With bankruptcy protection, there's a lot of questions, even if you believe Nortel is going to around after they come out [of protection], you don't really know what products are going to be in the portfolio.

"Until the restructuring's done, it's really difficult for a customer to have any faith that the [Nortel] product they're investing in is doing to stick around," he said.

Some of the woes are reflected in its shares, which are trading around 10 cents each.

Nortel's 2008 results by business unit are telling:

-Carrier Networks revenue plunged 50 per cent in the fourth quarter over the third quarter. For the year, revenue was down 8 per cent over 2007;

-Enterprise Solutions revenue dropped 30 per cent in the fourth quarter over the third. For the year it was down 15 per cent;

-Global Services revenue was off 12 per cent in the fourth quarter over the third. However, by the end of the year sales from this division were up 5 per cent over 2007.

-the Metro Ethernet Networks division, which Nortel had been trying to sell since the fall, saw revenue down 17 per cent in the quarter. However for the year revenue was up 17 per cent.

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