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Experton Group Weekly IT News

Nortel Announces $507m Loss, Needs More Time To Sell Units

By: Caroline Gabriel

Nortel needs yet more time to restructure itself in order to exit bankruptcy protection, its auditors Ernst & Young said last week, having only recently negotiated a second extension, to the end of July. As the Canadian firm announced a first quarter loss of $507m, it seems that its reorganization - which will almost certainly involve a break-up - is taking longer than anticipated, probably because possible buyers for its various units are trying to raise financing or are haggling over the price.

Focal Points:

• In Q1, Nortel saw revenues fall 37% to US$1.73bn, down from $2.76bn a year ago, when it posted a loss of $138m. The decline came across business lines and geographies, as the company struggles to win more than a handful of contracts amid the growing doom and gloom about its future. Worst hit were Asia-Pacific and Middle East/Africa.
• Holding up a little better were the home markets of Canada (revenue down 31% to $114m) and the US (down 26% to $803m). Asia fell by 54% to $366m and EMEA was down 40% to $356m.
• Nortel remained tightlipped about the possible progress of sales of its units. Although it remained adamant for some months after entering bankruptcy protection that it would emerge intact, if streamlined, it has to get the best deal for its shareholders, and with customers getting cold feet and the process being dragged out, that it is increasingly likely to come from break-up. Huawei is said to be interested in various units, including Metro Ethernet, cellular networks and the LG-Nortel joint venture (which could also be taken over wholly by LG), while Nokia Siemens has also been named as a candidate for the mobile infrastructure business, and Cisco or Juniper could go after the VoIP segment.

Carrier Networks is the largest division, covering cellular networks, carrier VoIP and Metro and applications technology. This unit's sales fell by 32% and its operating profit to $42m. Nortel blamed "a reduction in spending by certain customers as a result of their change in technology migration plans", with Verizon widely assumed to be the main one. The biggest revenues falls year-on-year came at LG-Nortel, down 66% to $188m, and Enterprise Solutions, down 41% to $395m.