Last week on February 27, Nortel Networks Corporation [NYSE/TSX: NT] reported fourth quarter net loss of $844 million, or $1.70 per share. Added to the economic slowdown and low North American carrier spending, Nortel also had to deal with a change in Canadian tax profile with a $1.1 billion tax write-down. Following 2900 job cuts in 2007, it plans to save $300 million in 2008 by cutting 2100 more jobs and moving 1000 positions to high-growth, low-cost locations. Earlier coverage is available here and here.
Revenue in Q4 was $3.2 billion, down 3.6% y-o-y and up 18.5% sequentially. Excluding the impact of the UMTS Access divestiture, revenue grew by 2% y-o-y. Gross margin was 43.7%, up from 39.8% last year and 43% in Q3.
For 2007, revenues were $10.95 billion, down 4% and up 2% excluding impact of UMTS Access divestiture. Net loss was $957 million, or $1.98 per share, compared to net earnings of $28 million, or $0.06 per share in 2006.
Segment-wise, Q4 Carrier Networks (CN) revenue was $1,346 million, down 9% y-o-y and up 25% sequentially, affected by the UMTS Access divestiture, partially offset by growth in CDMA and VoIP. Excluding the impact of the UMTS Access divestiture, CN revenue declined by 2% y-o-y.
Enterprise Solutions (ES) revenue was $762 million, down 3% y-o-y and up 14% sequentially, affected by lower y-o-y revenues from the LG-Nortel joint venture, partially offset by growth in voice, data and applications businesses.
Global Services (GS) Q4 revenue was $605 million, up 12% y-o-y and 12% sequentially driven by strong growth in network implementation services, support services and managed services. Excluding the impact of the UMTS Access divestiture, GS revenue grew by 32% y-o-y.
Metro Ethernet Networks (MEN) revenue in Q4 was $429 million, down 4% y-o-y and up 19% sequentially. The y-o-y decline was mainly due to decreases in long-haul optical revenue and legacy data, partially offset by increases in metro optical.
For 2008, Nortel expects revenue to grow in the low single digits. Gross margin is expected to be about 43% of revenue. There are rumors of a possible merger of the wireless infrastructure divisions of Motorola and Nortel. President and CEO Mike Zafirovski was formerly the president and chief operating officer of Motorola. Its stock is currently trading around $7.71, hitting a new 52-week low. Market cap is around $3.4 billion, close to its Q4 revenue.
Pretty ugly situation. How the company gets turned around, is difficult to assess. There doesn’t seem to be any strategic guidance from the management, besides continued drastic cost-cutting. In contrast, at least 3Com has an investment thesis, even though they have their own headaches with the government.