Nortel beats targets, takes heart from VoIP

The telecommunications equipment maker exceeds analyst expectations for its fourth quarter and says it is looking to wireless and VoIP sales to sustain the momentum.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read
Nortel Networks blew past analyst expectations for the fourth quarter, reporting on Thursday strong growth in wireless networking and a positive outlook for its voice over Internet Protocol equipment.

The telecommunications equipment maker turned a profit in the last quarter of 2003, ended Dec. 31, reporting net income of $499 million, or 11 cents a share. That compares with a net loss of $168 million, or 4 cents a share, during the same quarter a year ago.

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Revenue rose to $2.83 billion from $2.53 billion a year earlier and was up 25 percent from the third quarter. Analysts had expected Nortel to report earnings of 2 cents a share and revenue of $2.44 billion, according to Reuters Research.

"While we expect that the percentage growth in the overall capital spending by our customers will be in the low single digits in 2004, compared to 2003, we expect to grow faster than the market by leveraging our particular strengths in voice over IP and wireless data solutions," Frank Dunn, CEO of Nortel, said in a statement.

The Brampton, Ontario-based company's earnings included a few exceptional items, but Dunn was still very positive about the company's overall progress. He cited growth in its wireless group, which grew about 33 percent from the previous year. The company's overall wireline networks business was also up about 9 percent.

The company saw declines in other product segments, such as enterprise networking, which fell 2 percent, and optical networking, which fell 18 percent, compared with the same quarter a year ago.

While he didn't break out specific figures, Dunn indicated that the company's VoIP equipment business also started to contribute significantly to sales in 2003, and he said he sees the technology becoming very important in 2004. Nortel recently announced a major contract with Verizon Communications to be its main supplier of VoIP gear for the next 18 months.

"I expect VoIP will have a significant impact on our business in 2004," Dunn said during a conference call with analysts. "People will deploy the technology in 2004."

Nortel's blowout quarter comes on the heels of a similar report from its closest competitor, Lucent Technologies. Lucent also increased revenue in the fourth quarter, benefiting from one-time items and strong growth in its wireless business.

Dunn encouraged analysts and investors not to get too excited over the results of this one quarter. In addition, he refused to provide guidance for the first quarter of 2004. Instead, he focused on the bigger picture, telling analysts that he is optimistic about Nortel's prospects in 2004.

"Don't expect a big increase in capital spending this year," he said. "But there will be (a) significant shift in spending on new sets of technology in the enterprise and in carrier networks."

Dunn emphasized that carriers are starting to spend more on IP products, along with support services such as broadband access and third-generation wireless, echoing remarks from Scott Kriens, CEO of Juniper Networks, which also reported a strong fourth quarter. Dunn said revenue from older legacy technology will continue to shrink, as more money is allocated to the newer technology.