Nortel Networks, the troubled Canadian telecommunications equipment supplier, sprang another unpleasant surprise on Thursday, saying third-quarter revenues were likely to be lower than the previous three months and that revenue growth for the year would lag the overall market.
Just one month ago, Nortel projected that its 2004 revenues would outpace the rest of the market. It estimated second-quarter revenues at US$2.6bn, up from $2.5bn in the first quarter. The company is in the throes of restating financial results dating back to 2001 and has yet to produce audited reports for the first two quarters of this year.
It said on Thursday it expected growth in 2004 revenues to be “in the mid-single digits and that the overall communications equipment market will grow faster than that”. Last month's statement projected overall market growth “in the low to mid-single digits”.
Nortel shares slid by almost 8 per cent to close at $3.50 in New York on Thursday. Nortel said it would elaborate on the revenue setback when it reports third-quarter earnings, at a yet-to-be-determined date.
Wireless equipment makes up about half of Nortel's business and corporate networks another quarter. The remainder is split between traditional wire-line phone equipment and fibre optic networks.
Jim Kelleher, analyst at Argus Research, said Nortel had struggled to make headway in the broadband CDMA wireless market against established suppliers such as Ericsson, Nokia and Siemens. Matthew Hoffman, analyst at Schwab Soundview Capital Markets, interpreted on Thursday's revenue warning as a consequence of recent internal upheavals rather than a sign of customer skittishness.
“The company has been through financial restatements, reorganisation and a management shake-up,” Mr Hoffman said. “All these things would lead to business dislocation. Nortel still has good products.”
Nortel's accounting practices are under investigation by securities and law-enforcement authorities in the US and Canada. Over the past six months, the company has dismissed 10 senior managers, including its chief executive and chief financial officer. It is in the process of cutting 10 per cent of its workforce.
William Owens, chief executive, said this week that the company might release restated results for 2003 and the first half of 2004 sooner than its previously announced deadline of October 31.