Friday, Canadian network solutions provider Nortel Networks Corp. (NRTLQ.PK,NRTLQ.OB), reported a turn to profit for the first quarter despite a decline in revenue, due mainly to reorganization gains related to divestitures of the Optical Networking and Carrier Ethernet assets to Ciena and the GSM/GSM-R assets to Ericsson and Kapsch. Results for the quarter were also devoid of losses from discontinued operations incurred in the first quarter last year.
Net earnings attributable to Nortel Networks was US$355 million or US$0.67 per share, compared with a net loss of US$507 million or US$1.02 per share in the year-ago period.
Nortel's first quarter included reorganization items of US$497 million primarily related to gains on the divestitures of the Optical Networking and Carrier Ethernet assets to Ciena of US$549 million and the GSM/GSM-R assets to Ericsson and Kapsch of US$93 million. Also included in the quarter were operating income of US$60 million comprised primarily of billings under transaction services agreements and other income of US$61 comprised primarily of a currency exchange gain of US$44 million, partially offset by interest expense of US$75 million and US$12 million in income tax expense.
Net loss for the first quarter of 2009 included a loss from discontinued operations of $197 million, $122 million equity in net loss of Equity Investees, interest expense of $76 million, other expense - net of $55 million comprised primarily of a loss of $46 million due to changes in foreign exchange rates, and a loss of $22 million due to income attributable to non-controlling interests.
Net earnings from continuing operations were US$357 million or US$0.67 per share, compared with a loss from continuing operations of US$288 million or US$0.63 per share a year-ago.
Total consolidated revenues declined to US$484 million from US$1.04 billion in the prior year period. While revenues from products declined to US$408 million from US$967 million, revenues from services increased to US$76 million from US$74 million last year.
Segment-wise, revenues from Wireless Networks declined to US$168 million from US$568 million last year; revenues from Carrier VoIP and Application Systems declined to US$154 million from US$169 million; revenues from Metro Ethernet Networks declined to US$216 million from US$360 million; and revenues from the LG-Nortel segment declined to US$122 million from US$188 million last year. Other revenues increased to US$4 million from US$1 million last year.
Equity Investees revenues, which are deducted from segment and other revenues were lower at US$180 million, compared with US$245 million a year earlier.
Gross margin for the quarter was 27.5% of revenues, compared with 41.3% a year earlier. This decrease was primarily a result of the divestiture of the CDMA/LTE Access business in the fourth quarter of 2009 and the unfavorable impacts of inventory provisions and warranty costs, partially offset by favorable foreign exchange fluctuations.
Cost of revenues declined to US$351 million from US$611 million last year.
Operating expenses were US$280 million in the first quarter, compared with US$463 million in the first quarter last year. A focus on reducing costs, and the divestiture of the CDMA/LTE Access and ES businesses in the fourth quarter of 2009, resulted in lower operating expenses compared to the year ago quarter.
While selling, general and administrative or SG&A expense declined to US$184 million from US$233 million last year, research and development expense declined to US$96 million from US$230 million a year earlier. SG&A expenses excluded $70 million in the first quarter 2010 and $132 million in the first quarter of 2009 related to Equity Investees, R&D expenses excluded $7 million in the first quarter of 2010 and $27 million in the first quarter last year related to Equity Investees.
Cash balance as of March 31, 2010 was $1.9 billion and excluded Equity Investees cash of $788 million. Consolidated cash balance decreased slightly from the December 31, 2009 consolidated cash balance of $2.0billion, which excluded Equity Investees cash of $815 million.
NRTLQ.PK closed at $0.04, down 3.72%, on a volume of 1.39 million shares.
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