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May 16, 2006 10:06 pm

Nortel Networks warns of wider losses

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Nortel Networks cautioned on Tuesday that its first-quarter loss would be slightly higher than the $48m loss for the same period last year. Revenues are expected to be flat at best.

Reiterating pledges to provide full financial transparency and improve its corporate governance standards, the Ontario-based telecommunications equipment maker also revised its gross margin projection for the year to 40 per cent of revenue and operating expenses, from the “low 40s” estimate provided in March.

Adverse currency movements and growth-related expenses have offset productivity gains.

The revisions were contained in a fortnightly report to Canadian securities regulators that Nortel is required to make as part of continuing investigations into accounting irregularities.

Nortel shares fell 1.4 per cent to C$2.85 in early trading on Tuesday.

Nortel executives told analysts that competition was intense but that they expected improved demand in the second half of this year. Revenues for the year as a whole are expected to grow by close to 10 per cent.

The company also provided more details of its business plans, saying it aimed for a market share of at least 20 per cent in all its products. It plans either to sell, cancel or significantly curtail 11 product programmes, while expanding three others.

It added that talks were under way to expand its presence in mobile communications and corporate telecoms infrastructure.

Mike Zafirovski, chief executive, said “our strategy is not completed yet” but dismissed concern expressed by one analyst that Nortel might be spreading itself too thinly across corporate and phone company customers.

Earlier this year, Nortel agreed to a $2.47bn settlement of a class-action lawsuit stemming from the accounting irregularities.

Nortel said it expected to publish first-quarter financial statements no later than June 9. Its annual meeting is on June 29.

Nortel has been dogged by upheavals for five years, including massive lay-offs, accounting irregularities, restatements of financial results and management turmoil. Ten executives, including the chief executive, chief financial officer and controller, were dismissed in 2004.

Mr Zafirovski, recruited from Motorola last year, has estimated that it would take three to five years to restore Nortel to its former glory.

Nortel said its priorities included an “aggressive focus” on its balance sheet, corporate governance standards, financial controls and timely reporting.

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