Nortel Networks has increased its revenue and trimmed its losses in the first quarter of 2007 compared with results for the same period last year, and reported 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 was becoming a normal company again, president and CEO, Mike Zafirovski, said on a conference call following the release of the results. Earlier in the 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 wanted to gain a significant foothold in the global services business. Nortel still lost $US103 million or $US0.23 per share on revenue of $US2.48 billion in the quarter ended March 31. But by contrast, in the first quarter of 2006, the company lost $US180 million or $US0.39 per share on revenue of $US2.39 billion.
"We are very pleased with Q1," Zafirovski said on the conference call, while acknowledging the company still has work to do. The CEO has carried out major changes since he took the helm in 2005, including selling off Nortel's Universal Mobile Telecommunications System unit last year. The company's year-over-year revenue gain of 4 per cent translated to 12 per cent not counting the impact of the UMTS divestiture.
Nortel's enterprise network revenue grew 31 per cent from a year earlier, driven by both data and voice products, it said. The company thinks 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 per cent from a year earlier, driven partly by two large contracts.
Nortel planned 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 was now in a position to consider acquisitions that it couldn't 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, Communication Network Architects analyst, Frank Dzubeck. Cisco is the biggest obstacle. "They basically have taken over the entire world with respect to IP (Internet Protocol)," 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 would have to invent new things, Dzubeck said. One area it needed to address was services-oriented architecture, which was 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.