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Nortel Loss Widens

It affirms full-year sales guidance.
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first-quarter loss widened by a greater-than-expected 61% from a year ago, as margins in several key categories continued to feel pressure.

The Canadian telecom lost $167 million, or 4 cents a share, in the quarter, compared with a loss of $104 million, or 2 cents a share, a year ago. Sales were $2.38 billion in the latest period, little changed from a year ago.

On average, analysts surveyed by Thomson First Call were expecting a loss of 1 cent on sales of $2.54 billion in the latest quarter.

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Looking ahead, the company reiterated previous guidance on 2006 revenue.

"We continue to expect strong revenue momentum for the rest of 2006, resulting in high single digit growth for the full-year 2006 compared to 2005, gross margin to be around 40% as a percentage of revenue and operating expenses to be flat to up slightly from 2005, with foreign exchange and growth related expenses offsetting productivity and efficiencies," Nortel said. "For the second quarter of 2006, we expect revenue, gross margin and operating expenses to support our full-year guidance."

Nortel said first-quarter sales in its mobility and converged core network divisions fell 4% from a year ago to $1.43 billion, while sales in enterprise solutions and packet networks fell 1% to $871 million. Gross margins also shrunk in both sets of operations, leading to a 4.3-percentage-point decline in the parent's gross margin.

"Overall, we continue to see an unfavorable product mix and competitive pricing pressures, partially offset by improvements in our cost structure as a result of lower material pricing," Nortel said.

On the cost side, the company's selling, general and administrative expense was widened by higher costs related to the acquisition of PEC Solutions plus the formation of a joint venture with LG. The company also cited unfavorable currency exchange and "and increased costs as a result of our business transformation initiatives, internal control remedial measures and investment in our finance processes."

The stock closed at $2.29 Monday.