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Nortel beats estimates on optical sales

The Canadian telecommunications equipment maker says fourth-quarter profits shot up 40 percent as it beat estimates by 2 cents and announces its second stock split in less than a year.

Nortel Networks said fourth-quarter profits shot up 40 percent as the Canadian telecommunications equipment maker beat Wall Street estimates by 2 cents today and announced its second stock split in less than a year.

Excluding one-time costs, Nortel posted a fourth-quarter profit of $607 million, or 43 cents per diluted share, compared to $434 million, or 32 cents a share during the same quarter last year, under generally accepted U.S. accounting principles. Financial analysts had expected earnings of 41 cents a share, according to First Call.

For the quarter ended Dec. 31, revenue increased 19 percent, from $5.52 billion last year to $6.57 billion this year, excluding costs related to acquisitions.

Under Canadian accounting rules, Nortel recorded a fourth-quarter profit of $755 million, or 55 cents per share, compared to $477 million, or 36 cents a share during the same period last year. For the quarter, under accepted Canadian accounting principles, revenue increased 21 percent, from $5.77 billion last year to $6.99 billion this year.

The difference between the two countries' accounting methods centers around the way the United States and Canada account for stock options, according to Nortel executives and analysts.

Nortel's shares rose about $6 to $108.88 in after-hours trading.

Nortel executives said sales of networking gear to telecommunications carriers and Internet service providers soared, largely due to its optical networking products that help service providers build higher-speed networks.

"What really propelled this is we're firing on all cylinders on the carrier end," Nortel chief executive John Roth said. "We're doing extremely well in this competitive market and optical is fueling that and rapidly becoming Nortel's largest business."

Nortel's success comes as one of its chief competitors, Lucent Technologies, issued a profit warning in advance of its latest quarterly earnings. Lucent executives said it could not keep up with demand for its optical systems--one of the primary reasons for the shortfall.

Fourth-quarter sales to carriers rose 31 percent, compared to the same quarter last year. Sales to businesses dropped 5 percent in the fourth quarter, but overall revenue from businesses grew during the full fiscal year, the company said.

For the fiscal year, Nortel earned a profit of $1.43 billion, or $1.06 a share, compared with last year's profit of $980 million, or 86 cents a share. Yearly revenue jumped from $16.85 billion to $21.29 billion, based on U.S. accounting practices.

But under Canadian accounting rules, Nortel during the fiscal year earned a profit of $1.73 billion, or $1.28 a share, a 62 percent increase from last year's profit of $1.1 billion, or 93 cents a share. Yearly revenues jumped 26 percent, from $17.6 billion to $22.2 billion.

Nortel said sales of optical networking equipment grew 80 percent for the full year.

"Even with more competition this year, we expect the broadband division to fuel the entire company's growth rate," investment bank Goldman Sachs said in a research report.

Nortel's stock split is the company's second in the past six months. The company last announced a two-for-one stock split in July.

"They're riding the optical wave in a big way," said Probe Research analyst Hilary Mine.

Roth said the company, which earlier this year couldn't keep up with demand for optical equipment, has expanded its manufacturing plants and expects to be able to meet demand by the end of the current quarter or early next quarter.