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Tax Charge Sends Nortel to Big Loss

Fourth-quarter sales fall 4% from a year ago to $3.2 billion.

Updated from 9:17 a.m. EST

Nortel Networks

(NT)

posted a steep loss in the fourth quarter after recording a hefty tax charge, and the Toronto telecom equipment maker set plans to continue paring its work force.

The company said Wednesday that it had a loss of $844 million, or $1.70 a share, in the fourth quarter. Those numbers compare with a profit of $27 million, or 5 cents a share, in the third quarter and a loss of $80 million, or 19 cents, a year ago.

Nortel's loss came as the company recorded a $1.06 billion charge in the fourth quarter related to changes to its tax profile in Canada.

Fourth-quarter sales fell 4% from a year ago to $3.2 billion. Analysts were looking for sales of $3.3 billion, according to Thomson First Call. Shares of Nortel were dropping $1.58, or 13.8%, to $9.87.

"It is a challenging environment," said CEO Mike Zafirovski during the company's conference call. "As a result, we came at the lower end of our revenue guidance."

Nortel's gross margin widened to 43.7% in the fourth quarter from 43% in the third quarter and 39.8% last year. Operating margin also improved to 7.6% from 5% in the third quarter, but still came up shy of the company's own forecast of 10%.

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Looking ahead to 2008, Nortel said it expects revenue to grow in the low-single digits compared with 2007. The company added that gross margin should be 43% of revenue in 2008.

Nortel also unveiled plans to cut about 2,100 jobs as part of its restructuring plan that it hopes will achieve double-digit operating margins. The company will also transfer another 1,000 to what it deems "lower-cost geographies." In the most recent quarter, Nortel booked $38 million in restructuring charges, a 31% increase from a year ago.

"Over the past year, we have driven process improvements across the organization and today we are announcing the difficult but necessary measures that accompany this type of transformation," Zafirovski said in a press release. "Our ultimate goal is to build a high-performance, efficient and simple organization within a cost structure that allows us to compete and win effectively against any competitor in the world."

Nortel, like its sector brethren such as

Alcatel-Lucent

(ALU)

, has been engaged in a long cost-cutting campaign that has seen thousands of workers in the industry let go, as consolidation among telcos has eaten into demand. In January,

Tellabs

(TLAB)

swung the ax.