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Bleeding Continues at Nortel

Beleaguered networking vendor Nortel revealed precisely how bad its past year had been, signaling that as it restructures in a bid to regain its luster, it's going to have to overcome sizable hurdles.

Nortel, which entered bankruptcy protection in Canada and the United States early this year, said in its full-year earnings report that it lost $5.8 billion, or $11.64 per share, during 2008.

That figure represents a five-fold increase from the $957 million, or $1.98 per share, in losses that it posted in 2007. Revenues, meanwhile, declined to $10.42 billion, a drop of 5 percent from 2007.

For the quarter, Nortel posted revenues of $2.72 billion, a decline of 15 percent from the fourth quarter of 2007.

That led to a net loss of $2.13 billion for the quarter, or $4.28 per share -- a steep decline from the $844 million ($1.70 per share) that Nortel lost in the fourth quarter of 2007. Part of that quarterly loss came as a result of a $1.24 billion goodwill writedown.

The company did not hold an analyst investor call to discuss its earnings. A Nortel spokesperson was not available for comment by press time.

The news comes as the latest indication of the large obstacles ahead of Nortel as it restructures its business -- an effort that's taking place against the backdrop of a troubled global economy that's sapping the fortunes of others in the networking space.

Industry leader Cisco, for instance, recently reported declining income and revenues. The networking giant said early last month that income totaled $1.5 billion during its second fiscal quarter of 2009, down by 27 percent from the previous year. Revenue also decreased to $9.1 billion -- a drop of 7.5 percent compared to the same period a year earlier.

Signs of strength?

Despite the massive losses, Nortel's president and CEO still struck an optimistic tone about the company's results.

"The management operating margin was the highest since 2000, key customer performance and quality metrics were also at multiyear highs, and our fourth-quarter operating expenses were down 30 percent from the prior year," Mike Zafirovski, Nortel's president and CEO, said in a statement.

Part of Nortel's operating expense reduction come from layoffs that have taken place over the course of 2008.

Additionally, the red ink isn't flowing at the same rate from all of Nortel's divisions -- suggesting that it still has some areas of strength.

Nortel's carrier network division reported fourth-quarter revenue of $1.23 billion, a decrease of 8 percent compared to a year earlier. But the results also represented an increase of 50 percent over the third quarter of 2008. Nortel is active in the 40G transport space and is actively developing and testing new 100 Gigabit Ethernet equipment. Other networking vendors including Cisco and Juniper have reported slowing carrier sales though Juniper's CEO noted that network demand at carriers continues to grow.

In comparison, Nortel's enterprise revenue in the fourth quarter declined to $535 million, 13 percent lower than the previous quarter and 30 percent down from the same period last year. Nortel recently announced that it would be selling off part of its enterprise application routing business to networking vendor Radware.

Nortel is however pushing forward on new enterprise initiatives under the leadership of John McHugh, Nortel's new vice president of enterprise solutions. Among the expected new initiatives is a services router that could potentially be used to run application on top of Nortel's networking gear.

[cob:Special_Report]For industry watches, the results show that Nortel's ticket isn't punched quite yet.

"I think that Nortel will emerge from bankruptcy ... and I believe they will emerge a different and more focused company than they entered," Henry Dewing, an analyst at Forrester Research, told InternetNews.com. "They are continuing to hone their focus -- a requirement if they are to differentiate in the future."

Dewing said Nortel had signed important contracts during fourth quarter in the contact center, unified communications, video conferencing and next-generation collaboration segments -- mostly with a managed services focus.

Still, the company clearly has a long way to go, Dewing said.

"Nortel has reiterated its commitment to their customers and shareholders and continues to define its priorities," he said. "Until those priorities are clear, I believe it is impossible to predict with any accuracy Nortel's future prospects."

However, "I do believe that Nortel will continue to be an important player in the telecommunications market," he added.