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Nortel Posts Huge Loss

Troubled Canadian Internet networking giant Nortel Networks Corp. said its net loss from continued operations totaled $3.5 billion in its third quarter. But the company's pro forma net loss, before charges are taken out was $0.27 per share.

The consensus of 31 analysts surveyed by Thomson Financial/First Call had expected Nortel to report a pro forma net loss of $0.28. Estimates had ranged from a loss of $0.26 to a loss of $0.30, First Call also reported.

Nortel, which is seeing its equipment business slide as demand slides from network carriers, said its $3.5 billion net loss translates to a per-share loss of $1.08. Last year at this time, Nortel reported net earnings of $586 million or $0.17 a share.

Including incremental provisions and other charges, Nortel's pro forma net loss from continuing operations for the third quarter of 2001 was $2.18 billion or $0.68 per share, compared to pro forma net earnings of $597 million or $0.19 per share for the same period in 2000.

In the quarter, incremental charges included $750 million for excess and obsolete inventory, primarily related to Optical Inter-City; $767 million for increased provisions related to trade receivables and customer financing; and $380 million primarily related to charges associated with certain third party investments.

Revenues in the quarter dropped to $3.7 billion from $6.7 billion in the year-ago third quarter, the company also said.

Earlier this month, Nortel warned that it expected to post a $3.6 billion loss in the third quarter, and lowered its third-quarter revenue forecast to $3.5 billion, which fell short of analysts' estimates of $3.9 billion to $4.6 billion at the time.

Nortel has been cutting jobs, jettisoning businesses and slashing costs as it tries to climb back into the black amid deteriorating conditions in the telecommunications sector. The company has been in the process of cutting back about 45,000 workers, with most of those affected being notified of their job status by the end of this month. Charges related to the workforce reductions will be taken in the fourth quarter of this year, Nortel said today.

Nortel started 2001 with 94,500 employees.

"Revenues for the quarter reflected the challenges presented as the telecom industry adjusted to new levels of spending,'' said outgoing President and Chief Executive Officer John Roth in a statement. "Our bottom line results reflected the impact of actions we have taken to adjust to the new business levels."

Frank Dunn, Nortel's new president and chief executive officer effective on Nov. 1, said, "While we believe we are beginning to see early indications that capital spending by service providers is approaching sustainable levels, it still remains difficult to predict." Because of this and last month's terrorists attacks, Nortel will not provide advance guidance for the fourth quarter of 2001 or for 2002's fiscal year, he also said.

Shares of Nortel today unofficially closed off $0.03 at $5.92. In after-hours trading at 4:55 P.M. EDT, Nortel was off two cents of today's official closing price.

Earlier this week, UBS Warburg issued a report stating that Nortel and Cisco Systems would make good merger partners, according to Reuters. UBS Warburg said Nortel would help Cisco in its drive for leadership in the wireless- and optical-equipment markets.

Cisco would be helped by a partnership with Nortel or rival Lucent Technologies , because both firms are both strong suppliers to U.S. telecom carriers, Reuters quoted UBS Warburg as saying.

On Nortel's sales side, TheStreet.com reports that Qwest Communications has made Ciena Corp. the sole provider of an equipment contract -- a pact previously shared by Ciena and Nortel. The Web site quoted people familiar with the deal as saying that Nortel lost out after Qwest demanded a better price, and Ciena met that cost.

Bob Woods is the managing editor of OpticallyNetworked.com.