When 8 Cents is Not 8 Cents

Nortel posted second-quarter earnings of $366-million this morning, or an eye-popping 8 cents a share (compared with analyst estimates of about 2 cents). However – and this is a big however – the profits were nowhere near as high as they appear. For one, the bottom line was buoyed by a $510-million gain from shareholder litigation recovery. After accounting for charges related to restructuring and the sale of assets, Nortel actually lost about $89-million in the quarter, or about 2 cents a share. Another sign the ship has yet to recover is a drop in gross margins to 39% from 43%. Nortel remains confident the rest of the year will be more promising. CFO Peter Currie provided this outlook.

“For the full year 2006, we continue to expect strong revenue momentum for the rest of 2006, resulting in high single digit growth for the full year 2006 compared to 2005, gross margin to be around 40% as a percentage of revenue and operating expenses to be flat to up slightly from 2005, with foreign exchange and growth related expenses offsetting productivity and efficiencies. For the third quarter of 2006, we expect revenue growth in excess of 10 percent compared to the third quarter of 2005 and gross margin and operating expenses to be in-line with our full year guidance.”

Here’s Light Reading’s take on the second-quarter results.


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