Nortel Posts $2.14B Q4 2008 Loss on Slumping Networking Equipment Sales

Still the world’s largest telecommunications equipment maker, Nortel, has announced a massive $2.135 billion Q4 2008 loss with sales down 15% to $2.72 billion given slumping demand for business and consumer networking equipment. Nortel also posted a massive $3.4 billion Q3 2008 loss, forcing the company into bankruptcy protection on January 14, 2009 because of declining cash balances.

For 2008, sales were down by 5% compared to 2007 to $10.42 billion. Nortel has not made any 2009 forecasts to date.

Financial Summary

* Revenues in fourth quarter of $2.72 billion, decreased 15 percent, and full year revenues of $10.42 billion, decreased by 5 percent, compared to 2007.

* Deferred revenue balances decreased by $323 million in the fourth quarter of 2008 and decreased by $1,115 million in the full year 2008.

* Gross margin (GM) in fourth quarter of 40.4 percent decreased 324 basis points, and full year GM of 41.1 percent decreased 103 basis points, compared to the prior year periods. The fourth quarter of 2008 included an incremental charge to increase inventory provisions of approximately $169 million, which negatively impacted fourth quarter GM by 621 basis points and full year GM by 162 basis points.

* Management Operating Margin (MOM)(a) in the fourth quarter of 11 percent, an increase of 335 basis points and full year MOM of 5.4 percent an increase of 170 basis points, compared to 2007. The improvements in MOM were driven by reductions in operating expenses, direct materials and labour productivity improvements, partially off-set by the incremental inventory provision charge of $169 million.

* Net loss in the fourth quarter of $2,135 million, or $4.28 per common share on a basic and diluted basis. The net loss included a non-cash write-down of goodwill of $1,237 million and a non-cash charge of $951 million in the fourth quarter to increase the valuation allowance against deferred tax assets. A net loss of $5,799 million for the full year 2008, or $11.64 per common share on a basic and diluted basis, which included a non-cash charge of $3,020 million to increase the valuation allowance against deferred tax assets and a write-down of goodwill of $2,379 million.

* Cash balance, as at December 31, 2008 was $2.40 billion, with an outflow of cash from operations in the fourth quarter of $89 million. Full-year Cash Flow from Operations was an outflow of $567 million.


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Hercules holds a B.Comm Finance from Ryerson University in Toronto, Canada. He is a Chartered Financial Analyst (CFA) level 3 candidate. He was previously a contributor at FiLife, a finance website owned by Dow Jones and IAC. Write to hercules@business2press.com
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