May 2, 2008 / 1:23 PM / 10 years ago

UPDATE 6-Nortel says will meet targets despite loss

(Updates with stock reversing direction; figures in U.S. dollars unless noted)

By Wojtek Dabrowski

TORONTO, May 2 (Reuters) - Nortel Networks Corp NT.TONT.N posted a bigger first-quarter loss on Friday as a series of charges weighed on results, but the telecommunications equipment maker reassured investors that it still expects to meet its full-year targets.

Nortel reported a loss of $138 million, or 28 cents a share, compared with a loss of $103 million, or 23 cents a share, a year earlier.

The latest results included a number of one-time items, including special charges of $88 million for restructuring, a charge of $12 million related to a patent lawsuit settlement, and a loss of $19 million due to changes in foreign exchange rates.

Revenue was $2.76 billion, up 11.1 percent. The boost included a release of deferred revenue related to the completion of a big contract in Nortel’s joint venture with South Korea’s LG Electronics that was previously expected to happen in the second quarter, the company said.

“The financials were very much better than people expected,” said Edward Snyder, principal analyst at Charter Equity Research.

Nortel’s shares surged by about 5 percent early on Friday morning on the Toronto Stock Exchange. However, they soon reversed direction to drop 45 Canadian cents, or 5 percent, to C$8.42.

About a year ago, the shares were trading at C$28.62.

Lehman Brothers analyst Inder Singh also called the Toronto-based company’s results “solid,” adding “most importantly, Nortel kept its annual outlook unchanged.”

Chief Executive Mike Zafirovski told analysts during a conference call that revenue from CDMA wireless technology was “down only 2 percent ... despite a pretty tough environment in North America.”

In an interview, he added that the performance of Nortel’s CDMA businesses in Eastern Europe as well as Vietnam and Indonesia was strong.

“High revenues in those countries have offset some of the declines in North America,” he said.

Demand for the wireless technology products that Nortel makes has been tepid as carriers have remained reluctant to spend big on large-scale upgrades or expansions for now.

“For as far out as we can see, it’s definitely going to stay that way,” Snyder said. “You’re not going to see a big increase in spending with carriers, for a bunch of fundamental reasons -- they’re not making much more money, so they’re not going to spend much more money.”

The tight hold that carriers are keeping on their purse strings and stiff competition from low-cost Asian vendors have been among the key reasons behind Nortel’s difficulties.

Despite the loss in the quarter, Nortel said it was pleased with the results and expects to achieve its full-year forecasts. These include revenue growth in the low single digits, gross margin of about 43 percent of revenue, and operating margin as a percentage of revenue to increase by about 300 basis points.

“We’ve started the year off with a good quarter in a pretty tough macro environment and we remain firmly focused in achieving our 2008 objectives,” Zafirovski said.

The comparable 2007 quarter included special charges of $80 million for restructuring.

Zafirovski also said the company’s balance sheet is stronger than it has been in the past and added, “we do expect to start generating cash in a meaningful way as of 2009.”

Nortel has spent the majority of this decade trying to repair itself after the technology bubble burst in 2001, taking the company’s fortunes with it. It has thus far failed to return to profitable growth, despite thousands of layoffs and the efforts of several management teams.

In late February, it said it would slash an additional 2,100 jobs as it tries to cope with persistently weak demand for the equipment it produces. ($1=$1.02 Canadian) (Reporting by Wojtek Dabrowski; Editing by Rob Wilson)

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