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Nortel matches expectations despite telecom slump

The telecommunications-equipment maker manages to meet Wall Street expectations, citing a strong performance from sales of Internet equipment.

    Telecommunications-equipment maker Nortel Networks managed to meet Wall Street expectations, citing a strong performance from sales of Internet equipment.

    Excluding charges related to acquisitions, the Canadian company reported fourth-quarter earnings of $825 million, or 26 cents a share, compared to $607 million, or 21 cents a share, for the same period a year ago. Revenue increased to $8.82 billion from $6.57 billion a year ago.

    Wall Street expected the telecommunications giant to make earnings of 26 cents a share on revenue of $8.67 billion, the consensus estimate of 36 analysts surveyed by First Call.

    "We are extremely pleased with our fourth-quarter results, especially the strong growth in optical Internet, wireless Internet and core IP networking," Chief Executive John Roth said in a statement.

    Including the charges, Nortel reported a net loss of $1.41 billion, or 46 cents a share.

    For the entire year, Nortel reported earnings of $2.31 billion, or 74 cents a share, versus $1.43 billion, or 52 cents a share, last year, excluding charges. Revenue increased to $30.28 billion from $21.29 billion last year.

    Analysts expected the company to post a profit of 74 cents a share on $30.16 billion in revenue.

    Investors have become concerned that a slowdown in spending for telecom equipment would hammer Nortel, so much so that the company reaffirmed its projections to Wall Street twice during the fourth quarter.

    The company announced last week that it plans to trim its work force and concentrate on high-growth markets.

    Nortel reaffirmed it expectations of 16 cents a share in earnings for the first quarter, but also said revenue will come in on the low side of forecasts at about $8.1 billion. The company's previous guidance was a range between $8.1 billion and $8.3 billion for the quarter.

    Analysts expect the company to generate about $8.23 billion in revenue, according to First Call.

    Nortel sold $10 billion in optical equipment for the year, almost double last year's numbers, which met the company's internal expectations.

    Nortel "hustled like crazy to get to $10 billion in optical," said Paul Sagawa, an analyst at Bernstein.

    The company believes that it is well-positioned to increase its market share in 2001. CEO John Roth said in a conference call with investors that customers regard the company as "a good solid buy for the coming year."

    Nortel has acknowledged that the overall economic climate is not certain but still expects to grow sales and earnings from operations by 30 percent in 2001 from the previous year, on the low end of its previous guidance of 30 percent to 35 percent.

    Yet some analysts remain cautiously optimistic. "I think it's unclear to most industry observers and companies what will happen in the second half of the year," said Tom Lauria, an analyst at ING Barings.

    Wall Street expects that the earnings slump that has hit many industries will turn around by the second half of the year, but some analysts are withholding their judgment at this time.

    "Nortel is going to execute well and win business. I buy that," said Sagawa. "I do not buy that the (overall) market is going to accelerate in the back half of the year."

    Wall Street likes what it has heard for now from Nortel. Shares of Nortel rose $2.19, or about 6 percent, to $38.88 in after-hours trading according to Island ECN, an electronic trading network.