No major surprises here, move along. Nortel’s posted a third-quarter loss of $99-million, or 2 cents a share – compared with expectations of a one cent profit. Not terribly off the mark but still a loss. Revenue, meanwhile, was $2.96-billion – slightly above expectations of $2.81-billion. For shareholders, perhaps the biggest news is a 10-for-1 share consolidation that will make the stock look like a real stock as opposed to quasi-penny stock. It will also shrink the number of outstanding shares from a gazillion to something that appears more reasonable. So what did CEO Mike Zafirovski think about the quarter? Here’s his quote from the press release.
“I am pleased with our overall revenue growth and, in particular, in our focus areas of next generation mobility, enterprise and related services, and metro optical. I am also pleased with the 270 basis points operating margin improvement versus the third quarter of 2005. However, we should and will be moving faster. Pricing pressures and the speed at which our revenues are shifting to next generation, early cycle products is increasing our challenge to drive profitability improvements. The management team and I are resolute in achieving a globally competitive cost structure and we are accelerating and enhancing our Business Transformation and Lean Six Sigma programs to close this gap and achieving double digit operating margins in 2008. I believe recent steps of establishing the Microsoft alliance, divesting our UMTS access business, and increasingly shifting resources to lower cost centers are indicative of our resolve.”
Update: Nortel’s gross margins fell to 38% in Q3 from 39% a year earlier. The decline was blamed on “pricing pressures and product mix”, which is far from encouraging and reflects the fierce competition to win contracts. Nortel’s cash balance is $2.6-billion compared with $1.9-billion in Q2. The increase came from a $2-billion credit facility, offset by the repayment of $1.3 billion one-year credit facility.