Nortel Breaks Through Telecom Clouds

The fact that Nortel and Lucent (LU Quote) saw dramatic increases in their gross margins in the last quarter suggests costs at both companies have come down considerably, say analysts.

"This certainly goes against the common wisdom that vendors are being forced to lower their prices," says Levy.

While it's hard to draw broad conclusions about the industry from Nortel's results, it is obvious just by the nature of the earnings discussion that Nortel has made progress.

It's a pretty good sign for Nortel when the "focus moves away from the balance sheet and on to whether your profits are sustainable," says CIBC World Markets analyst Steve Kamman, who has a sell rating on Nortel and Lucent. CIBC has done investment banking business with Nortel.

"There's still a lot of deep uncertainty hanging over the telecom industry," says Kamman. "But in terms of progress, I'd put Nortel two to four quarters ahead of Lucent."