Strong results boost Nortel shares

Nortel Networks's shares soared almost 13 per cent on Monday after it beat expectations for the second quarter.

Nortel, which still faces regulatory and criminal investigations following a long-running internal investigation into accounting problems, reported net earnings of $45m, or 1 cent a share, in the quarter ending June, up from $16m a year ago. Revenue rose 10 per cent to $2.86bn from $2.59bn.

The results were boosted by strong demand for wireless network equipment from US mobile carriers in particular, and underscored the Canadian group's financial rehabilitation following the accounting scandal.

Net earnings included restructuring charges of $90m and $39m in costs related to the sale of businesses and assets. The figures also included adjustments related to prior periods that reduced net earnings by about $40m, or1 cent per share.

Sales of equipment used in networks based on Code-Division Multiple-Access technology grew 17 per cent, fuelled by demand from Verizon Wireless and other mobile carriers. As a result, Nortel lifted its full-year revenue forecast and said it now expected revenues to increase 10 per cent.

Nortel's enterprise segment, which sells products to businesses users, also reported strong growth. Sales grew 26 per cent to $730m, boosted in part by the recording of some revenue that had been deferred.

The results are Nortel's first set of strong numbers in more than 18 months since the company restated earlier results.

“We are playing not just for short-term gain but long-term value, and I believe we're on the right track,” said William Owens, chief executive. “We are playing to win.”

Mr Owens was charged with restoring the confidence of investors and customers when he took over in April last year, following company disclosures of misreported results dating to 1999. Ten executives were ousted including Frank Dunn, the former chief executive. Under Mr Owens, Nortel has cut costs and refocused on growth opportunities.

For the full year Nortel continues to expect gross margins in the range of 40-44 per cent and to end the year with operating expenses as a per cent of revenue of about 35 per cent.

Nortel's shares, which have fallen more than 60 per cent since March last year, were more than 12 per cent higher by midday on Monday at $2.97 in composite trading on the New York Stock Exchange.