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Nortel soars after hours on strong networking sales

The company reports that second-quarter earnings rose 64 percent, exceeding analyst expectations on sales of its optical-networking equipment.

    Nortel Networks today reported that second-quarter earnings rose 64 percent, exceeding analyst expectations on sales of its optical-networking equipment.

    Net earnings for the period were $561 million, or 18 cents per share, on revenues of $7.82 billion. That compares with earnings of $320 million, or 11 cents per share, on revenues of $5.28 billion in the same period in 1999.

    Analysts expected Nortel to earn 15 cents per share, according to a survey by First Call.

    Including acquisition-related costs, Nortel reported a net loss of $745 million, or 26 cents per share.

    At 1 p.m. PST, the close of regular market trading, Nortel shares were up 50 cents to $82.50. The earnings report was issued after the close of regular trading. In after-hours trading, shares jumped $5.50 to $88.

    John Roth, Nortel's chief executive, attributed the better-than-expected results to growth in sales of the company's optical, wireless and corporate Internet-based networking gear.

    "Nortel Networks had another quarter of outstanding growth, which reflected our continued market leadership in key growth segments," Roth said in a statement. "In particular, our Optical Internet, Wireless Internet and high-speed Local Internet solutions revenues grew at rates of more than 150 percent, 18 percent and 80 percent, respectively, over the second quarter of 1999."

    Nortel said it would revise expectations for the rest of its 2000 fiscal year, expecting percentage revenue growth in the low 40s, rather than the previously articulated guidance of 30 to 35 percent.

    The lone drag on Nortel's bottom line continues to be its corporate networking business, made up largely of technology it acquired from Bay Networks two years ago. Roth, during a conference call with analysts, characterized the business as "lower growth than we would have liked to have seen," but he held out hope for the second half of this year.

    But the company continues to reap the benefits of runaway growth in the market for equipment to power telecommunications networks.

    "We view it as another outstanding quarter for Nortel," Roth said.

    Analysts expect Nortel's streak of positive earnings to continue. "We believe Nortel can sustain its momentum through at least (the third quarter) on the back of its exceptional optical equipment business," said Paul Sagawa, equities analysts for Sanford C. Bernstein & Co., in a research report released prior to the company's earnings.

    Yesterday Nortel announced plans to invest nearly $2 billion over the next 18 months to expand its optical systems and components production capacity worldwide. News of the investment came amid rumors that the networking giant is in talks to shed its optical parts business to Corning for more than $100 billion, according to reports.

    The company has also announced a bevy of major customer deals totaling billions of dollars in recent weeks, including expanded business with Williams Communications and WorldCom.

    Nortel today also won a contract potentially worth $2 billion with British Telecom for optical-networking equipment, marking the company's first sales success with BT's network "core," or backbone, where some of the largest network equipment sales occur.