Nortel increases revenue and trims losses

Nortel Networks increased its revenue and trimmed its losses in the first quarter of 2007 versus the same period last year, reporting strong growth in enterprise networks and in Code-Division Multiple Access (CDMA) mobile networks.

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Nortel Networks increased its revenue and trimmed its losses in the first quarter of 2007 compared with the same period last year, reporting strong growth in enterprise networks and in Code-Division Multiple Access (CDMA) mobile networks.

After years of battling an accounting scandal and restating financial results, the network vendor is becoming a normal company again, president and chief executive officer Mike Zafirovski said. Earlier this week, he had said the company was now focused on next-generation mobile technologies such as WiMax and on fixed-mobile convergence, as well as on transforming enterprise networks. It also wants to gain a significant foothold in the global services business.

Nortel still lost $103m (£51.5m) on revenues of $2.48bn (£1.24bn) in the final quarter. But by contrast, in the first quarter of 2006, the company lost $180m (£90m) on revenues of $2.39bn (£1.20bn).

"We are very pleased with Q1," Zafirovski said, while acknowledging the company still has work to do. The chief executive has carried out major changes since he took the helm in 2005, including selling off Nortel's Universal Mobile Telecommunications System (UMTS) unit last year. The company's year-over-year revenue gain of 4% translated to 12% not counting the impact of the UMTS divestiture.

Nortel's enterprise network revenue grew 31% from a year earlier, driven by both data and voice products, it said. The company believes it gained market share in this sector, though it is still dwarfed by Cisco Systems. Another strong growth area was the Metro Ethernet Networks division, where revenue rose 27% from a year earlier, driven partly by two large contracts.

Nortel plans to shift more of its research and development spending away from older product categories and toward totally new areas, Zafirovski said.

As it returns to normality, Nortel is now in a position to consider acquisitions that it could not have accomplished during its years of financial uncertainty, he said. Zafirovski suggested the company might find targets in services and broadband access.

Despite gains, Nortel faces formidable competitors everywhere it turns, said analyst Frank Dzubeck of Communication Network Architects. Cisco is the biggest obstacle. "They basically have taken over the entire world with respect to Internet Protocol (IP)," Dzubeck said. "Everyone else is second tier."

Meanwhile, in building next-generation mobile networks, Nortel is up against Alcatel-Lucent and the newly formed Nokia Siemens Networks. As it tries to build a services business, IBM looms.

To re-emerge, Nortel will have to invent new things, Dzubeck said. One area it needs to address is services-oriented architecture, which is the dominant trend of the moment in enterprises, in his view.

"They need to have some innovative thinking on this. Semantics is not going to produce revenue and profits," Dzubeck said.

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