Nortel spreads blame for loss

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Nortel Networks blamed a decline in gross margins, pricing pressures for enterprise products and contract delays in Korea for a wider first-quarter loss.

But the Canadian communications equipment maker said it remained optimistic about the outlook, citing a strong $5.7bn order-book.

Nortel’s loss in the quarter ended March 31 increased to $167m or 4 cents a share, compared with $104m or 2 cents a share a year earlier, on revenues that were flat at $2.38bn.

Despite the lacklustre results, Nortel repeated its forecast for revenue growth, on a percentage basis, in the high single-digits for all of 2006.

“While our results reflect a challenging first quarter, we continue to expect good revenue and operating margin momentum commencing in the second quarter, in line with our previously communicated full-year plan,” Mike Zafirovski, Nortel’s chief executive said on Tuesday.

The company also projected gross margins of about 40 per cent for the year, up from 38 per cent in the latest quarter when Peter Currie, chief financial officer, said margins were depressed by an unfavourable shift in product mix towards lower margin products.

Mr Currie said the lower gross margins accounted for about two thirds of the $63m additional loss in the latest quarter and noted that pricing pressures, particularly in the markets for enterprise data and voice products, remained severe.

Nevertheless, he said, “we still expect to grow revenues by a single digit percentage this year” with growth forecast across all market segments.In addition to the $5.7bn in order backlog, he noted that Nortel also has deferred revenues of about $3.7bn. The first-quarter filing brings Nortel up to date after a series of financial restatements stemming from an accounting scandal in 2004 that uncovered serious deficiencies in
the company’s books extending back as far as 2001.

Since taking over at Nortel last year, Mr Zafirovski, who left Motorola to help rebuild Nortel’s reputation, has undertaken a complete review of the company’s operations. He has recruited a new senior management team and is implementing a series of changes including cutting costs and refocusing on growth products and markets.

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