Nortel Plans Reverse Split

Nortel (NT) posted a third-quarter loss and set plans to do a 1-for-10 reverse split in a bid to get its stock price back up over $3.

The Toronto-based telecom gearmaker lost $99 million, or 2 cents a share, for the quarter ended Sept. 30, compared with a year-ago loss of $136 million, or 3 cents a share. Revenue rose to $2.96 billion from $2.52 billion a year earlier.

Analysts surveyed by Thomson Financial were looking for a penny-a-share profit on sales of $2.81 billion.

The latest quarter included a $43 million gain related to changes to the North American employee benefit plans, a gain of $16 million on the sale of assets, a shareholder litigation expense of $38 million reflecting a mark-to-market adjustment of the share portion of the global class action settlement and special charges of $25 million for restructuring.

"I am pleased with our overall revenue growth and, in particular, in our focus areas of next generation mobility, enterprise and related services, and metro optical," said CEO Mike Zafirovski. "I am also pleased with the 270 basis-points operating margin improvement vs. the third quarter of 2005.

"However, we should and will be moving faster. Pricing pressures and the speed at which our revenues are shifting to next generation, early cycle products is increasing our challenge to drive profitability improvements," Zafirovski said. "The management team and I are resolute in achieving a globally competitive cost structure and we are accelerating and enhancing our Business Transformation and Lean Six Sigma programs to close this gap and achieving double-digit operating margins in 2008. I believe recent steps of establishing the Microsoft alliance, divesting our UMTS access business, and increasingly shifting resources to lower-cost centers are indicative of our resolve."

For the fourth quarter, Nortel said it expects revenue growth in the mid to high single digits, gross margin to be between 38% and 39% and spending to be flat compared to the fourth quarter of 2005.

Nortel said it would do the reverse split Dec. 1. It will join a long list of networking companies, including JDSU (JDSUD) and Ciena (CIEN), in doing so.

"True shareholder value will be driven by ongoing progress and company performance, but this step helps create a better foundation on which to build," said chief financial officer Peter Currie.

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