Red ink keeps flowing at Nortel
Posted May 11, 2009
Research Triangle Park, N.C. — Nortel is dealing with an increase flow of red ink but has stabilized its cash reserves.
Revenues at Nortel plunged 37 percent to $1.73 billion and losses nearly tripled to $507 million for the first quarter of 2009 compared to the same time period a year earlier, the telecommunications gear maker reported Monday before the markets opened.
Sales also were down 36 percent from the last quarter of 2008.
Nortel, which employs some 2,000 people at its campus in Research Triangle Park, filed for bankruptcy protection in January. Its shares closed at 26 cents on Friday.
Year-to-year and quarter-to-quarter figures spell out Nortel’s deepening losses in each unit:
• Carrier networks reported $737 million in the first quarter, down 32 percent from 2008 and 48 percent from the previous quarter.
• Enterprise solutions reported $395 million, down 41 percent from a year ago and 34 percent from the fourth quarter of 2008.
• Metro Ethernet Networks recorded $360 million in revenues, a 10 percent drop from a year earlier and 21 percent from the end of 2008.
• LG Nortel, a joint venture with a South Korean firm, reported $188 million in revenue, down 66 percent from 12 months ago and 7 percent from the ending three months of 2008.
However, Nortel also reported that its cash balance improved slightly over 2008 to $2.48 billion from $2.4 billion. Nortel also said foreign currency exchange fluctuations increased its losses by 8 percent.
In a statement, Chief Executive Officer Mike Zafirovski noted the stabilization of Nortel’s cash as a plus.
"First quarter results showed a decline in revenue and margins as expected due to the severe economic downturn and our filings for creditor protection,” he said in a statement “However, despite the declines we saw this quarter, revenue has stabilized and our cash balance is stable from year-end 2008."
Nortel has been slashing payroll and expenses for months, including layoffs and receiving court approval to cease severance payments to workers who had been laid off before the firm filed for bankruptcy.
"We accomplished our initial objectives of maintaining our customer commitments and strengthening our operational performance,” Zafirovski said. “Network performance and customer service levels are at multi-year highs and customers are expressing their support of Nortel. Our employees have done a tremendous job under challenging conditions."
Zafirovski also said Nortel continued to reorganize the company internally with more emphasis on separate operating units. Media speculation has been rampant that Nortel will sell off its operations rather than reorganize as one venture. A minor subsidiary has already been sold for some $18 million.
On Feb. 25, Nortel said it would cut its work force by 3,200 jobs worldwide – some 10 percent of its total headcount.
On April 29, bankruptcy courts in Canada and the U.S. granted Nortel an additional 90 days to complete its reorganization plan. The original due day was May 1.
“The purpose of the stay of proceedings is to allow the Nortel companies to continue to develop a restructuring strategy for consideration by their creditors and the Canadian Court and file a plan of arrangement,” Nortel said in a statement on April 29.
Nortel did recently receive approval to pay millions of dollars in retention bonuses to certain employees.
Ernst & Young, the monitor for the Nortel case in the Canadian court, endorsed an extension for Nortel to reorganize.
On April 30, however, James Bagnall of the Ottawa Citizen reported that Nortel was “disintegrating.” Citing insider sources, Bagnall said Nortel was in the process of selling off several of its business units rather than reorganizing as a company.
“Nortel insiders talk of a culture in which there is near complete focus on selling off the businesses -- from telephone-switching gear to wireless networks,” he wrote.
Bagnall has covered Nortel and high-tech in Canada for several years.
Under bankruptcy, Nortel had hoped to reorganize while still generating business and revenues. “But while Nortel has been able to keep its creditors at bay, it has suffered sharper-than-expected declines in revenue in some of its most important product lines,” Bagnall wrote.
“This was likely the catalyst for senior management and the board of directors to accelerate their push for selling company assets,” he added
Other media reports have said that Nortel is considering selling its 50 percent plus one share ownership in a manufacturing joint venture with a South Korean firm. That Nortel unit has a substantial amount of cash available.
Bagnall laid out a scenario for the possible sale of Nortel’s top units:
• In coming weeks: Enterprise business unit, to possibly Avaya or Siemens Enterprise Communications Group
• Within five weeks: Nortel’s optical technology group to either Huawei Technologies, Alcatel-Lucent, Fujitsu or a private equity firm
• This summer: Wireless networking gear, possibly to Nokia Siemens Networks.
“Assuming the sales actually happen - these deals often involve multiple players and sudden shifts in bidding tactics - this would be the end for Nortel,” Bagnall said.