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Nortel warns again of Q3 revenue slump

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ComputerWire: IT Industry Intelligence

Nortel Networks Corp has issued a second profit warning on its third-quarter figures and announced plans to avoid the ignominy of de-listing of its shares in New York and Toronto by a reverse stock split.

The network equipment vendor said it now expects revenue in the third quarter to September 30 to show a 15% decline on the $2.77bn achieved in the previous three month. When it released second-quarter figures in July, it forecast that the third quarter would be "essentially flat" but last month revised this to a 10% decline.

Each month clearly brings a new bout of bad news, and Nortel blamed the deterioration on a further fall in spending by service providers, generally in the US and for wireless networks in Asia.

CEO Frank Dunn said he is sticking to the target of returning to profitability by June 2003. Last month, the company announced an additional 7,000 lay-offs, and Dunn said the company would be prepared to take additional action to achieve its profitability goals.

With shares trading in New York at just $0.64, Nortel runs the risk of de-listing and plans a reverse stock split, where the shares are merged to attract a higher value. The company said it plans to get this approved at the annual meeting next spring at a level it hopes will bring the new share price to a level of between $10 and $20.

This is a far cry from the bullish noises emerging from Nortel two years ago when the share price topped the $80 level and the company was boasting that research showed that bandwidth demand would increase 300-fold over the next eight to 10 years.

The then CEO John Roth dismissed predictions of a glut in network capacity. "Will this growth rate continue? We're being very bullish. It will absolutely." This was at a time when Nortel's revenue was over $8bn a quarter. With the current glut in network capacity, it is now predicting third-quarter revenue of approximately $2.3m.

© ComputerWire

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