Nortel exceeds expectations, loses another exec

Nortel Networks Ltd. reported $2.56 billion in revenue during the second quarter of 2007, marking a $37 million loss and an 8% decrease from the year-ago period; however the financials still came in ahead of market expectations. A UBS report highlighted Nortel’s gross margin of 41.1% as a slight jump from its own predictions.
Excluding the impact of Nortel’s UMTS Access divestiture, revenues decreased by only 1% in the quarter, Nortel added.
“Good progress is being made in our effort to reshape Nortel to deliver sustained value to shareholders. On balance, the key indicators of our financial health moved in a positive direction in the quarter,” Nortel President and CEO Mike Zafirovski said.
He noted that the gross margin was the highest for the company in eight quarters and that the operating margin grew significantly on a year-over-year basis for the fourth consecutive quarter.
“We are confident that the traction we are seeing with customers will translate into much higher sequential growth for the remainder of the year,” he added.
The company said it absorbed special charges of $36 million for restructuring, a $35 million provision related to ongoing discussions with the SEC, and experienced a gain of $69 million due to favorable effects of changes in foreign exchange rates and a gain of $10 million on the sale of assets.
“For the full year 2007, we continue to expect revenues to be flat to down slightly compared to 2006,” interim CFO David Drinkwater said. He added that full-year gross margin is expected to be in the low 40’s and that revenues in the third quarter of 2007 would be down in the mid-single digits compared to the year-ago quarter.
Company stock was down nearly 6.5% to $20.36 following the results.
In other news, Nortel announced that Dion Joannou, president of the vendor’s North America division, had resigned at the close of August to pursue other personal interests. No successor has been named. UBS wrote: “We believe these departures continue to signal ongoing organizational flux, not a particularly encouraging sign at this stage in the company’s transformation.”