Nortel shares drop more than 10%
CATHERINE McLEAN
Tuesday, November 07, 2006
Nortel Networks Corp. on Tuesday posted a net loss of $99-million (U.S.) as expenses increased, and the telecommunications-equipment company pared its full-year forecast for revenue and profit margins.
The net loss of 2 cents per share in the three months ended Sept. 30, compared with a net loss of 3 cents a share, or $136-million, in the year-earlier period. While revenue rose 17 per cent to $2.96-billion, gross profit as a percentage of revenue slipped to 38 per cent in the quarter from 39 per cent in the same quarter of 2005. Toronto-based Nortel blamed pricing pressure for the decline.
Nortel adjusted its outlook for 2006. The company now expects mid- to high-single digit revenue growth for the full year, compared with an earlier target of high-single digit growth. It is also forecasting a gross margin of between 38 per cent and 39 per cent, down from a previous target of 40 per cent.
Chief executive officer Mike Zafirovski, who took the helm of Nortel a year ago, said he is pleased with growth in the company's revenue and operating margin. "However, we should and will be moving faster," he said in a statement on Tuesday. "Pricing pressures and the speed at which our revenues are shifting to next generation, early cycle products is increasing our challenge to drive profitability improvements."
Mr. Zafirovski said the company is accelerating plans to restructure the business in the face of those competitive pressures. He is trying to boost profitability through a number of actions, including selling some businesses to focus on product areas where Nortel can be a leader, and shifting production and research to lower-cost countries like China.
Nortel is moving to sharply reduce expenses in its general and administrative areas and cut material costs, and has amended its assembly contract with outsourcer Flextronics which has taken over Nortel production facilities, Zafirovski said, and "we are seeing improving trends in our customer and employee satisfaction."
But he has warned the turnaround will take time. Investors have seen their shares slip 29 per cent over the past year. The stock fell 29 cents (Canadian), or 10.74 per cent, to close at $2.41 on Tuesday on the Toronto Stock Exchange.
The stock will get a lift when Nortel consolidates its 4.3-billion shares in December on a 1 for 10 basis. The move is aimed at making the company's shares more attractive to institutional investors and investment funds.
"True shareholder value will be driven by ongoing progress and company performance, but this step helps create a better foundation on which to build," Nortel chief financial officer Peter Currie said on Tuesday in the statement.
Nortel Networks Corp.
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