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Nortel posts first yearly profit since 1997

Nortel Networks Corp., one of the world's largest telecom equipment providers, reported stronger than expected fourth-quarter earnings on Thursday and its first full-year profit since 1997.
/ Source: Reuters

Nortel Networks Corp., one of the world's largest telecom equipment providers, reported stronger than expected fourth-quarter earnings on Thursday and its first full-year profit since 1997.

The Brampton, Ontario-based company blasted past forecasts as strong demand for its wireless equipment helped sales jump 12 percent from a year earlier.

Nortel reported net income of $499 million, or 11 cents a share, for the quarter ended Dec. 31, compared with a loss of $168 million, or 4 cents a share, in the corresponding period last year.

Revenues at the company, whose equipment is used to build phone, wireless and Internet networks, rose to $2.83 billion from $2.53 billion.

Analysts had expected a profit of 2 cents a share on revenues of $2.44 billion, according to Reuters Research, a unit of Reuters Group Plc.

Nortel said the results included $109 million of net earnings from discontinued operations -- net of tax, charges of $14 million for deferred stock option compensation associated with acquisitions, and $9 million of special charges related to restructuring activities.

Tera Capital Corp. portfolio manager Duncan Stewart said even excluding unusual items, Nortel appeared to have made between $250 million and $300 million, or around 6 cents a share, which was still ahead of expectations. Tera Capital holds Nortel shares.

"This is a blowout quarter for Nortel ... a very strong quarter from a company that only a year ago many people thought was a very serious candidate for bankruptcy," he said.

"These are certainly the healthiest earnings we've seen from Nortel in almost half a decade."

Nortel chief executive Frank Dunn said in a statement the company expects the percentage growth in overall capital spending by its customers will be in the low single digits in 2004 compared with 2003.

But he said Nortel expects to grow faster than the market, given strong demand for its wireless data and voice over Internet protocol products. These use Internet technology to break voice traffic into fast-moving packets of data that are shot across a phone company's network and reassembled at the other end.

Nortel won a key contract this month to become the main provider of the technology to Verizon Communications , the No. 1 U.S. phone company.

The company did warn that for the first quarter of 2004, it expects a seasonal decline in revenue compared with the fourth quarter of 2003.

Nortel's closely watched gross margin fell to 48 percent in the latest quarter from 52 percent in the third quarter.

Nortel's stock closed up 17 Canadian cents at C$8.76 in Toronto before the results were released. In New York the shares were up 11 cents at $6.57.

The former stock market darling remains far below its record high of C$124.50 hit in July 2000. But it has also rebounded from a low of 67 Canadian cents in October 2002.

Telecom equipment makers like Nortel, U.S.-based Lucent Technologies Inc. and Alcatel of France have seen demand for their equipment begin to recover after over-investment during the Internet bubble left phone companies with years of over-capacity.