* Q1 loss $1.02/shr vs loss of $0.28/shr
* Revenue drops more than one-third
* Company blames economy, bankruptcy filing
* CEO confirms talks for asset sales
* Shares sag 0.5 Canadian cents to 24.5 Canadian cents (Adds CEO comments; in U.S. dollars unless noted)
By Wojtek Dabrowski
TORONTO, May 11 (Reuters) - Nortel Networks Corp NT.TO, which filed for bankruptcy protection earlier this year, said on Monday its quarterly loss widened as the global recession contributed to a steep drop in revenue.
Nortel, North America's biggest maker of telephone equipment, also said it is completing plans to decentralize some functions at each of its four main businesses to give it more flexibility as it decides which divisions to sell.
The company lost $507 million, or $1.02 a share, in the three months ended March 31. That compares with a loss of $138 million, or 28 cents a share, a year earlier.
Revenue fell 37 percent to $1.73 billion with declines in all segments and regions, the company said. Analysts on average had expected Nortel to post revenue of $2.32 billion, according to Reuters Estimates.
The company blamed the drop on the weak economy and its bankruptcy filing, which rattled the confidence of some customers.
Chief Executive Mike Zafirovski said in an interview that revenue stabilized after January and began to track higher in February and March, adding: "I am cautiously optimistic that the worst is behind us."
Nortel filed for bankruptcy protection in January, blaming the economic crisis for derailing a turnaround effort that began in 2005.
Since then, there has been widespread speculation among analysts and in media reports that the company may be sold off in pieces rather than revived as a viable stand-alone entity.
Sources have said that Nortel rivals, including Nokia Siemens Networks [NSN.UL], have approached the Toronto-based company with offers for key parts of its business. However, no deal has materialized so far.
Zafirovski confirmed openly on Monday that Nortel has held talks with suitors regarding possible asset sales, but declined to go into detail.
He also said speed was of the essence in the company's restructuring process, but added that doesn't mean management will act hastily as it fights to navigate through restructuring and the financial crisis.
"We're very conscious that time is not our friend," he said.
Duncan Stewart, an analyst at DSAM Consulting in Toronto, said the process will likely take months to complete, but it's possible that division sales could begin in as little as a month's time.
"If we saw everything tidied up in the next week, I would be astonished."
Nortel shares are almost worthless, falling 0.5 Canadian cents to 24.5 Canadian cents on the Toronto Stock Exchange. In mid-2000, at the height of the company's success, the stock was worth more than C$1,100, adjusted for a share consolidation that took place in late 2006.
$1=$1.16 Canadian Reporting by Wojtek Dabrowski; editing by Rob Wilson