Nortel: Revenues stabilize, but still off 37 per cent from '08 levels

The company filed for bankruptcy protection from creditors Jan. 14

Nortel Networks CEO Mike Zafirovski today said the equipment maker is beginning to see revenue and cash balance stability, even as the company reported a 37 per cent drop in revenues during the first quarter compared to the same period a year ago.

"Despite the declines we saw this quarter, revenue has stabilized and our cash balance is stable from year-end 2008," Zafirovski said in a statement.

First quarter revenues totaled US$1.73 billion, compared to $2.76 billion in the first quarter of 2008. Zafirovski blamed the global economic downturn and Nortel's filings for creditor protection in the U.S. and Canada for the drop.

Nortel's cash balance was US$2.48 billion at the end of the quarter, a slight increase from the end of the previous quarter when it had $2.4 billion.

Nortel filed for protection from creditors on Jan. 14, and despite questions in recent months about the company's restructuring plans, Zafirowski offered no details.

"Discussions are taking place with various external parties; however decisions have not been taken and we continue to evaluate the restructuring alternatives," he said.

Zafirowski also said that Nortel is taking appropriate steps to create separate stand-alone businesses from its current operations.

"We have made the necessary structure decisions to give Nortel the ability to optimize value and preserve innovation platkorms and employment to the greatest exptent possible," he said in the statement.

"Our businesses will have the opportunity to more effectively serve the discrete needs of their respective customers and market segments, while maintaining high customer service and network performance levels."

Analysts have been concerned about how Nortel's largest customers might react to the creditor protection filings, and how their products would be repaired and serviced should Nortel's structure change.

Zafirowski gave some insight about breaking up business units into separate standalone entities, saying Nortel plans to decentralize is carrier sales and global operations functions in coming weeks to enhance the units' "overall responsiveness to [changing] customer and market requirements and provide the opportunity to better serve customers."

As for today's earnings report, one analyst, Jack Gold, said that breaking up Nortel business units doesn't help customers, since the largest will want a sizable support organization.

"I don't think splitting up helps that much," said Gold, an analyst at J.Gold Associates.

Gold said anytime a firm falls into trouble, customers worry about what could happen if the company changes and support is reduced.

He suggested an overseas company could buy Nortel and split up its units, but he said any potential buyer is probably waiting until the cost of doing so diminishes further.

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