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July 24, 2003
Nortel Networks Reports Results for Second Quarter of 2003
- Revenues: US$2.33 billion, down sequentially approximately 3%
- Net loss of US$14 million; US$0.00 per common share
- Strong cash balance of US$4.2 billion, up sequentially approximately US$0.2 billion
TORONTO – Nortel Networks* Corporation [NYSE/TSX: NT] today reported results for the second quarter and the first six months of 2003 prepared in accordance with United States generally accepted accounting principles.
Second Quarter 2003 Results
Revenues were US$2.33 billion for the second quarter of 2003 compared to US$2.40 billion for the first quarter of 2003 and US$2.77 billion for the second quarter of 2002. Nortel Networks reported a net loss in the second quarter of 2003 of US$14 million, or US$0.00 per common share, compared to net earnings of US$54 million, or US$0.01 per common share, in the first quarter of 2003 and a net loss of US$697 million, or US$0.20 per common share, in the second quarter of 2002.
Net loss in the second quarter of 2003 included an aggregate of US$37 million (net of tax) for the amortization of acquired technology and deferred stock option compensation associated with acquisitions and US$5 million of special charges for restructuring. The company’s results also included a benefit of approximately US$51 million (pre-tax) related to the reduction in provisions associated with the collection in the quarter of certain customer financing receivables.
“Our second quarter results reflected the continued cautious spending exhibited by our customers,” said Frank Dunn, president and chief executive officer, Nortel Networks. “Although the industry conditions remained difficult, our momentum and leadership position continued across our key focus areas. We continued to engage and create value for our customers, focusing on the growth opportunities and leveraging our technology and solutions leadership.”
Highlights of some of Nortel Networks recent announcements across its focus areas included:
Wireless Data
- Continued momentum of Nortel Networks GSM, GPRS and Enhanced Data Rates for GSM Evolution (EDGE) solutions in North America with the announcement of a four-year agreement estimated to be worth US$300 million with T-Mobile USA as well as a Cingular Wireless contract for Home Location Register (HLR); and
- Growth in the deployment of CDMA2000 1X solutions with the commercial launch by Midwest Wireless of its first phase 3G CDMA 1X network.
Voice over Packet
- Continued to demonstrate success across the service provider Voice over IP (VoIP) market with the deployment of a fully featured VoIP network for cable operator Cox Communications and a long distance VoIP network for MCI and the first major local service commercial launch of VoIP service with Sprint; and
- Established top position in global IP line shipments with 22 percent market share in the first quarter of 2003, as reported by Dell’Oro Group.
Multimedia Services and Applications
- Contract with SaskTel to support its plans to become the world’s first provider to deploy Advanced Multimedia and Packet Voice Services using Nortel Networks Multimedia Communications Portfolio and Succession* VoIP equipment enabling unified communications capabilities across multiple media and devices;
- Contracts to provide secure broadband Internet access, IP-VPNs and other IP services across a five province network for China Netcom, China Railcom and China Telecom, based on Shasta* 5000 Broadband Service Node and Passport* 15000; and
- Deployment of Visitor-Based Networking (VBN) solution enabling hospitality operator Mandalay Resort Group to offer customizable wired and wireless access based on Nortel Networks fully interoperable portfolio of IP switches and WLAN devices.
Broadband Networking
- Ongoing leadership in packet networks with Cincinnati Bell Wireless GSM and GPRS core wireless data network and multiservice broadband network in The Netherlands for Orange NL;
- First deployments of Passport 20000 core multiservice switching platforms in the Caribbean and Latin America region with Cable & Wireless Jamaica and Dominican Republic’s CODETEL;
- Two contracts with British Telecom (BT) to deploy OPTera* Metro 5200 Multiservice platform for storage area network (SAN) connectivity services and OPTera Connect HDX optical switches in BT’s pan-European networks;
- Contract to enable NTT Communications to provide fiber channel leased line service for the disaster recovery market and leased broadband network infrastructure for enterprise customers based on OPTera Metro 5200 DWDM; and
- University of Texas at Austin and School District of Philadelphia to deploy multimedia and enhanced educational applications based on the enriched OPTera Metro 5000 multiservice platform, leveraging Fiber Availability Service and standards-compliant Coarse Wavelength Division Multiplexing (CWDM).
“I am pleased that our business model performed well in this challenging market,” said Doug Beatty, chief financial officer, Nortel Networks. “Going forward, we will continue to manage each of our businesses based on individual performance and market opportunities.”
Outlook
Frank Dunn said, “I am encouraged, based on our customer engagement and their support for our solutions, in our ability to improve our market position going forward. Given the ongoing global economic pressures and industry conditions, we will continue to manage our business cautiously in the near term.”
Consistent with last quarter, Nortel Networks is not providing any specific revenue or earnings guidance at this time.
Breakdown of Second Quarter 2003 Revenues
Revenues by segment
Compared to the first quarter of 2003, Wireless Networks revenues increased 4 percent, Enterprise Networks revenues decreased 11 percent, Wireline Networks revenues decreased 12 percent and Optical Networks revenues increased 10 percent. Compared to the second quarter of 2002, Wireless Networks revenues decreased 12 percent, Enterprise Networks revenues decreased 14 percent, Wireline Networks revenues decreased 16 percent and Optical Networks revenues decreased 27 percent.
Revenues by geographic region
Compared to the first quarter of 2003, the United States decreased 5 percent, the Europe, Middle East and Africa region (EMEA) decreased 9 percent, Canada increased 6 percent and Other increased 10 percent. Compared to the second quarter of 2002, the United States decreased 24 percent, Canada decreased 31 percent and EMEA decreased 8 percent while Other increased 4 percent.
Gross margin
Gross margin was 43.7 percent of sales in the second quarter of 2003, up from 42.9 percent in the first quarter of 2003, and 34.5 percent in the second quarter of 2002.
Expenses
Selling, general and administrative expenses were US$416 million in the second quarter of 2003, which included a benefit of approximately US$51 million related to the reduction in provisions associated with the collection in the quarter of certain customer financing receivables. Including this benefit, SG&A expenses were down approximately US$71 million compared to the first quarter of 2003 and approximately US$351 million compared to the second quarter of 2002.
Research and development expenses were US$479 million in the second quarter of 2003, compared to US$489 million for the first quarter of 2003 and US$579 million for the second quarter of 2002.
Six-Month Results
For the first half of 2003, revenues from continuing operations were US$4.73 billion compared to US$5.69 billion for the same period in 2002. Nortel Networks reported net earnings of US$40 million, or US$0.01 per common share for the first half of 2003, compared to a net loss of US$1.54 billion, or US$0.46 per common share, in the first six months of 2002. These results included US$190 million of net earnings from discontinued operations – net of tax; US$139 million of special charges for restructuring; and an aggregate of US$73 million (net of tax) for the amortization of acquired technology and deferred stock option compensation associated with acquisitions.
Other Matters
Given in 2003 relatively minor amounts may have greater effect on reported results, the Company has initiated a comprehensive review and analysis of its assets and liabilities. The outcome of the activity may result in the elimination of certain assets and liabilities but is not expected to have a negative impact to net assets. No amounts relating to the elimination of any such assets and liabilities have been included in the results for the second quarter of 2003.
Nortel Networks is an industry leader and innovator focused on transforming how the world communicates and exchanges information. The company is supplying its service provider and enterprise customers with communications technology and infrastructure to enable value-added IP data, voice and multimedia services spanning Wireless Networks, Enterprise Networks, Wireline Networks, and Optical Networks. As a global company, Nortel Networks does business in more than 150 countries. This press release and more information about Nortel Networks can be found on the Web at www.nortelnetworks.com.
Certain information included in this press release is forward-looking and is subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Factors which could cause results or events to differ from current expectations include, among other things: the severity and duration of the industry adjustment; the continued reductions in spending by our customers; the sufficiency of our restructuring activities, including the potential for higher actual costs to be incurred in connection with restructuring actions compared to the estimated costs of such actions; fluctuations in operating results and general industry, economic and market conditions and growth rates; negative impacts on our gross margins; the ability to recruit and retain qualified employees; fluctuations in cash flow; the level of outstanding debt and our current debt ratings; the ability to meet the financial covenant in our credit facilities; the use of cash collateral to support our normal course business activities; the dependence on our subsidiaries for funding; the impact of our defined benefit plans and our deferred tax assets on our results of operations, cash flows and compliance with our financial covenant; the ability to make acquisitions and/or integrate the operations and technologies of acquired businesses in an effective manner; the impact of rapid technological and market change; the impact of price and product competition; international growth and global economic conditions, particularly in emerging markets and including interest rate and currency exchange rate fluctuations; the impact of rationalization in the telecommunications industry; the dependence on new product development; the uncertainties of the Internet; the impact of the credit risks of our customers and the impact of customer financing and commitments; stock market volatility; the impact of the New York Stock Exchange minimum listing requirements and the proposed consolidation of our common shares; the impact of acceleration or early settlement of our purchase contracts; the impact of supply and outsourcing contracts that contain delivery and installation provisions, which, if not met, could result in the payment of substantial penalties or liquidated damages; the ability to obtain timely, adequate and reasonably priced component parts from suppliers and internal manufacturing capacity; the future success of our strategic alliances; and the adverse resolution of litigation. For additional information with respect to certain of these and other factors, see the reports filed by Nortel Networks with the United States Securities and Exchange Commission. Unless otherwise required by applicable securities laws, Nortel Networks disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
*Nortel Networks, the Nortel Networks logo, the Globemark, OPTera, Passport, Shasta, and Succession are trademarks of Nortel Networks.
Nortel Networks will host a teleconference/audio webcast to discuss Q2 2003 Results.
TIME: 5:00 PM – 6:00 PM EDT on Thursday July 24, 2003
To participate, please call the following at least 15 minutes prior to the start of the event.
Teleconference:
North America: 888-211-4395
International: 212-231-6007
Webcast: www.nortelnetworks.com/2q2003
Replay:
(Available one hour after the conference until 11:59 pm EDT, August 6, 2003)
North America: 800-383-0935
Passcode: 21107576#
International: 402-530-5545
Passcode: 21107576#
Webcast: www.nortelnetworks.com/2q2003
Contact for Press and Analysts:
Investors:
Nortel Networks
888-901-7286
905-863-6049
investor@nortel.com
Media:
Tina Warren
Nortel Networks
905-863-4702
tinawarr@nortel.com
Additional Media & Analyst Contacts
 Consolidated Balance Sheet (7 KB)
Consolidated Cash Flow (8 KB)
Consolidated Results (7 KB)
Supplementary Information (10 KB)
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