Nortel Posts Larger 1Q Loss, Sales Fall

ACI Research analyst Edward Zabitsky said there's reason to think that phone companies and other carriers who buy from Nortel and its rivals have got to start spending soon on their networks.

Telecom carriers have cut their capital spending to the bare minimum over the past six months, focusing on their most urgent and short-term needs, Zabitsky said.

"Just to handle the ongoing demand, they need to be spending more than they are. Even running their networks hotter, as they are — running their networks more fully loaded — there needs to be a snap-back to a higher spending level," said Zabitsky.

Nortel Chief Executive Mike Zafirovski said that on the expense side, sales, general and administration spending was cut to $528 million in the first quarter of 2009, down from $597 million a year earlier, while research and development spending fell 19 percent to $341 million from $420 million.

Most of its cost reductions came from staffing reductions, which were made in late 2008 and early 2009 before and after the company got protection under Chapter 11 of the U.S. bankruptcy code and the Companies' Creditors Arrangement Act in Canada.