Nortel reports weaker profit

TORONTO - Nortel Networks Corp, one of the world's largest telecom equipment suppliers, has reported steeply lower fourth-quarter earnings.

The company, which has been restating several years of results to correct accounting errors, filed the fourth-quarter results after normal regulatory deadlines had passed.

Although the results take Nortel a big step closer to being up-to-date with its earnings, analysts said the company has still not shrugged off its accounting problems.
"There were little rays of hope here and there, but costs are high for the next quarter or so. I don't think they have turned the corner," said Edward Snyder, an analyst at Charter Equity Research. "In the meantime, investors are not waiting around. Those dollars are going to go somewhere else."

Shares of Brampton, Ontario-based Nortel plunged almost 11 per cent, or 35 Canadian cents, to touch a two-year low of $C2.85 ($3.13) before closing at $C2.89 on the Toronto Stock Exchange, for a loss of 31 Canadian cents or 9.7 per cent. In New York, they fell 7.6 per cent, or 19 cents, to US$2.30 ($3.18).

The company said it earned $133 million, or 3 cents a share, in the quarter ended December 31, down 75 per cent from $528 million, or 12 cents a share, in the year-before quarter.

Revenue was US$2.6 billion, down from US$3.27 billion. It was about US$200 million less than Nortel had forecast because it decided to defer revenue, Nortel chief financial officer Peter Currie told a conference call.

Analysts had expected earnings of 2 cents a share and revenue of US$2.83 billion, according to Reuters Estimates.

"We were a little surprised on the revenues," said Lehman Brothers analyst Steven Levy.

"In terms of getting their business model right I don't think they're there. The evidence is their ability to forecast revenue even as the quarter is closing, and the ability to get operating expenses down still leaves something to be desired."

Wireless products revenue slipped 11 per cent to US$1.28 billion, wireline sales tumbled 19 per cent to US$461 million, and optical revenue fell 28 per cent to US$226 million.

Expenses rose to US$542 million, from US$481 million, as Nortel continued to spend on its restatements and invest in reorganizing its finances. Currie said he sees operating expenses rising slightly in the first quarter of 2005, compared with the same time last year.

Gross margin was 45 per cent of sales in the fourth quarter, compared with Nortel's targeted 40 per cent to 44 per cent range, driven by higher than expected sales of traditional products.

Nortel warned that its first-quarter numbers will miss a regulatory deadline, and it expects to file those by the end of May and hold its annual meeting on June 29.

The company is trying to recover from accounting woes that sparked criminal and regulatory probes. In January, it restated several years of results to correct bookkeeping errors.

- REUTERS