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Nortel Foresees Growth, Accounting Issues Linger

Nortel is increasingly optimistic about its future as it tries to shake its past, CEO Bill Owens said in a conference call today.

Owens said surging demand for converged network equipment will help his company grow faster than the industry average. At the same time, the accounting scandal that chased Owens' predecessor won't be settled this quarter.

The restatement of financial results for full year 2003 and the first quarter of 2004 will not be issued this quarter. The Toronto company said it could not provide a date when the process would be completed, but has hired an additional outside accounting experts to work on the project.

"I assure you we are working very hard to complete the restatement as promptly as possible... We are committed to transparency and getting all the facts and getting them right" Owens said.

An independent audit is continuing and the Toronto company will provide investors with biweekly updates, as required by Canadian Securities regulations.

While acknowledging that the employees are "sad" about the accounting flap, Owens said the they remain focused on its business strategy.

"This company has good business momentum, our orders are good, our customers are satisfied," Owens said. "We expect the telcom equipment market to increase in the low single-digit percentages and we will grow faster than that market."

Specifically, Owens said that carriers' orders for Voice over Internet Protocol and 3G equipment are encouraging and that enterprises are starting to upgrade their networks.

While the market is improving, it's also becoming more crowded. Across different product lines, Nortel competes with Cisco Systems , Lucent Technologies and others. Nortel will focus on cutting costs and raising cash.

Owens, whose been on the job for one month, noted that Nortel also faces a "substantial threat" from China's Huawei, whose labor costs are lower. Cutting costs doesn't necessarily mean cutting jobs, but Nortel must make sure its processes are as efficient as possible, Owens said.

On the cash side, amassing a war chest is also critical as the market recovers. During the telecom boom of the late 1990s, Nortel and its counterparts spent billions of dollars to acquire startups.

The buying tailed off (along with the value of the stock used to finance the buys) during the downturn. At the same time, Nortel needed to conserve cash and the venture capital for telecom startups dried up, resulting in fewer takeover targets.

"We will drive cash in every way we possibly can," Owens said. "This marketplace will see significant consolidation and we must have cash to play effectively."