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Nortel ready to rebound?; CEO says yes, analysts hesitant

Thu, 07/18/2002 - 8:00pm
Sean McKibbon

Copyright 2002 Sun Media Corporation

The Ottawa Sun…07/19/2002

From LexisNexis

Despite predicting a shrinking market for telecom equipment in 2003, Nortel Networks CEO Frank Dunn expects his firm will be in the black next year.

"By June of next year I expect to be profitable," Dunn said during Nortel's quarterly earnings conference call yesterday.

The company reported a $697 million, 20 cents a share, loss for the second quarter of 2002 — down considerably from the gargantuan $19.4 billion, or $6.08 a share, loss the firm reported for the second quarter of 2001.

But revenues were also down to $2.77 billion for the most recent quarter, compared to $4.61 billion for the same period last year.

Dunn said he's seeing orders from customers "stabilize" after steep declines. Nevertheless, he predicted spending on networking gear would show a "modest decline" in 2003.

No specific job cuts were announced, but company executives did say they are looking to cut costs.

The announcement left analysts asking how the firm could turn a profit by next year if the market shrinks and the firm doesn't aggressively move to reduce its break-even point from $3.2 billion in revenue.

"It makes you want to ask, 'what's wrong with this picture?' " said Duncan Stewart, a fund manager at Tera Capital Corp. in Toronto.

But Stewart said even small changes in market share for Nortel could give the company an "up" year.

Dunn suggested during the teleconference that a switch to third-generation, or 3G, cellphones as well as "packetization" — a move to unify voice and data networks — will bring about a shift in market share for his company

"In the 3G world we're a very significant player," Dunn said, adding that a number of European telecom players that haven't been traditional Nortel customers are now using Nortel products.

Dunn said Nortel expects revenue in the current third quarter, ending Sept. 30, to be essentially the same as in the second quarter. Insufficient, in other words, to meet the company's previously announced "break-even" point.

"Focusing on our top priority of returning to profitability in the near term, we will continue to actively review our previously announced $3.2 billion break-even model," he said.

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