Nortel sees slower-than-market growth in Q3

Nortel expects its revenue in the third quarter to fall below the previous quarter’s estimated number and for its full-year 2004 revenue to grow slower than the overall communications equipment industry, the company said in a statement last week.

For 2004, the Brampton, Ontario network gear maker now expects to report percentage revenue growth from 2003 in the mid-single digits. It expects the industry as a whole to have faster revenue growth, according to a statement announcing Nortel’s biweekly regulatory disclosure to the Ontario Securities Commission. In a disclosure last month, it had projected that its revenue would outpace the market.

Last month, Nortel released estimated unaudited revenue of $5.1 billion for the first half of this year, with approximately $2.5 billion for the first quarter and $2.6 billion for the second quarter.

The company, a major supplier of wireless and wireline network infrastructure, is under investigation by the Ontario Securities Commission and the U.S. Securities and Exchange Commission regarding the restatement of its financial results for periods going back as far as 2001. It is required to submit biweekly updates to the Ontario regulator.

Nortel now expects to report results for 2003 and the first two quarters of 2004 by the end of October, according to spokeswoman Tina Warren.

By the end of this month, the company plans to provide details of a workforce reduction of about 3,500, or about 10%, that it announced last month, Warren said. Nortel expects the cuts to cost about $300 million to $400 million and deliver annual savings of about $500 million, she said.

Nortel is having trouble winning new customers in some segments because of perspective clients who shy away from the company’s perceived problems, according to analyst Frank Dzubeck of Communications Network Architects, in Washington, D.C. Nortel’s products are good and the company isn’t on the verge of being acquired, so potential customers shouldn’t be affected, in Dzubeck’s view. A longer perspective is needed, he said.

“If you see that this happens on a quarter-after-quarter basis, then the trend is indicative… of that fact that there are problems,” Dzubeck said. But it’s hard to draw conclusions yet. “It’s all speculative until they restate,” he said.

The IDG News Service is a Network World affiliate.