Nortel Networks Corp. increased its revenue and trimmed its losses in the first quarter of 2007 versus the same period last year, reporting strong growth in enterprise networks and in CDMA (Code-Division Multiple Access) mobile networks.
After years of battling an accounting scandal and restating financial results, the Brampton, Ontario, network vendor is becoming a normal company again, President and CEO Mike Zafirovski said on a conference call following the release of the results. On Wednesday, he had said the company was now focused on next-generation mobile technologies such as WiMax and on fixed-mobile convergence, as well as on transforming enterprise networks. It also wants to gain a significant foothold in the global services business.
Nortel still lost US$103 million or $0.23 per share on revenue of $2.48 billion in the quarter ended March 31. But by contrast, in the first quarter of 2006, the company lost $180 million or $0.39 per share on revenue of $2.39 billion.
“We are very pleased with Q1,” Zafirovski said on the conference call, while acknowledging the company still has work to do. The CEO has carried out major changes since he took the helm in 2005, including selling off Nortel’s UMTS (Universal Mobile Telecommunications System) unit last year. The company’s year-over-year revenue gain of 4 percent translated to 12 percent not counting the impact of the UMTS divestiture.
Nortel’s enterprise network revenue grew 31 percent from a year earlier, driven by both data and voice products, it said. The company believes it gained market share in this sector, though it is still dwarfed by Cisco Systems Inc. Another strong growth area was the Metro Ethernet Networks division, where revenue rose 27 percent from a year earlier, driven partly by two large contracts.
Nortel plans to shift more of its research and development spending away from older product categories and toward totally new areas, Zafirovski said.
As it returns to normality, Nortel is now in a position to consider acquisitions that it couldn’t have accomplished during its years of financial uncertainty, he said. Zafirovski suggested the company might find targets in services and broadband access.
Despite gains, Nortel faces formidable competitors everywhere it turns, said analyst Frank Dzubeck of Communication Network Architects Inc. Cisco is the biggest obstacle. “They basically have taken over the entire world with respect to IP (Internet Protocol),” Dzubeck said. “Everyone else is second tier.”
Meanwhile, in building next-generation mobile networks, Nortel is up against Alcatel-Lucent SA and the newly formed Nokia Siemens Networks BV. As it tries to build a services business, IBM Corp. looms.
To re-emerge, Nortel will have to invent new things, Dzubeck said. One area it needs to address is SOA (services-oriented architecture), which is the dominant trend of the moment in enterprises, in his view.
“They need to have some innovative thinking on this. Semantics is not going to produce revenue and profits,” Dzubeck said.
