At Nortel, 'Starting a New Chapter'

Updated from 5:29 p.m. EST

Nortel's (NT) restructuring is complete, and now profits are the top priority.

The Canadian telecom-equipment maker delivered improved results for the fourth quarter Thursday evening, saying it will return to the black by midyear.

"We've turned the page," Nortel CEO Frank Dunn told analysts on a conference call Thursday. "Our business model has now stabilized. We are starting a new chapter."

Among the more convincing positive developments for Nortel in the fourth quarter was news that it had finally stopped selling optical networking gear at a loss. This marks a significant and quick turnaround for a business that first led Nortel to record sales levels in the late '90s and later became a loss leader as the industry bogged down in an oversupply of optical network capacity.

Company officials decline to say how much gross margin they now reap from optical gear, but they say sales of the equipment did help the company improve overall margins by a point sequentially, to 39%.

For the fourth quarter, Nortel posted a loss of 6 cents a share, in line with Wall Street estimates and substantially narrower than the year-ago 57-cent loss. Sales rose 7% sequentially to $2.5 billion, though that represented a 27% year-over-year drop.

Not including one-time charges and gains, Nortel posted a pro forma loss of a penny, far narrower than its previous-quarter loss of 10 cents.

The company says it expects the networking gear market to continue its three-year decline and says first-quarter sales will fall from fourth-quarter levels.

"I am extremely pleased with the progress we made as reflected in our fourth-quarter performance," Dunn said in a press release. "Our overall revenues were up sequentially across all of our lines of business and geographic regions."

Notably, U.S. gearmaking rival Lucent (LU) said Wednesday that it expects a 20% jump in sales for the current quarter, an increase tied to the timing of some large wireless infrastructure orders.

Nortel says it can now stop focusing on what to jettison and start investing in the growth opportunities available in networking.

But with Nortel's North American customers expected to trim their spending this year by somewhere between 10% and 15%, those growth opportunities may be limited. Nortel shares rose a nickel Thursday to $2.40.

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