Nortel Reports Sharp Revenue Drop; New CEO Eyes Recovery

"This has been a long journey," says Frank Dunn, Nortel's former CFO who became the CEO almost three months ago. "We've gone through the heavy lifting, and the repositioning of the company ,and now we can spend time focusing on the customers and look at how we can accelerate the business."

The company expects to return to profitability in the fourth quarter of 2002. But the recovery will be bumpy: sales will be down by 10 percent in the first quarter of 2002. The company expects sales to start growing in the second quarter, says Terry Hungle, Nortel's CFO.

The Brampton, Ont., company reported fourth-quarter revenue from continuing operations of $3.46 billion, down 58 percent from $8.2 billion in the same period a year ago. The company posted a loss of $1.83 billion, or 57 cents a share, compared with a loss of $1.41 billion or 46 cents a share in the same quarter a year ago.

The company posted a quarterly net loss excluding costs and restructuring charges of $506 million or 16 cents a share. That was in line with the consensus estimate of analysts surveyed by First Call/Thomson Financial.

As for the year, Nortel's revenues were $17.5 billion for 2001 compared to $28 billion for 2000. The company's net loss for 2001, excluding charges was $4.51 billion or $1.41 per share, compared to a net profit in 2000 of $2.5 billion, or 80 cents per share.

From the third quarter to the fourth quarter of 2001, revenue for the metro and enterprise networks division increased 8 percent due to increases in metro optical and circuit to packet sales. Those gains offset declines in circuit switching sales.

Revenue in the wireless network division fell by 11 percent, with increases in the U.S., Canada and Latin American and decreases in Europe, and Asia.

As Nortel's sales started to plummet last year, the company slashed unprofitable businesses and dramatically reduced its workforce of 100,000.

At the end of the fourth quarter, Nortel had 52,600 employees, officials say, and the company will continue to reduce the staff to 48,000.

"I personally feel very sorry for what has happened," says Dunn during the conference call. "There's no question the event in 2001 caused hardship and disruption for the employees and their families. The industry correction was not foreseen. We are a company that takes great pride in its people and one of our top priorities is to reenergize the spirit of our people."

Dunn told analysts that the turn around in the industry was not going to be a "cinch,"' for any company. But he says Nortel sees several positive signs that business will pick up over the year.

Sales in North America have been flat from the third to the fourth quarter. That is an indicator that sharp declines are over.

Certain technologies, such as voice over IP, are gaining momentum. Nortel has announced large contracts with Qwest Communications and Sprint. And, Dunn says the company is closing other large deals that will be announced later.

The company also has been cited by research groups as making market share gains in Ethernet switching and maintaining a lead in the fixed layer switching market.

"I spent over 60 days with customers talking about our opportunities and for many of them their focus is how to reduce costs," Dunn says. "We need to bring the case to them that they can save money [using Nortel's technology."

Nortel's shares closed Thursday at $7.74, up 49 cents.