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Nortel nets strong 2Q
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July 27, 1999: 6:04 p.m. ET
Telecom and networking equipment firm beats estimates by 5 cents a share
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NEW YORK (CNNfn) - Nortel Networks Tuesday handily beat Wall Street's second-quarter earnings estimates as the communications equipment firm saw strong demand for its Internet networking products.
Excluding one-time charges and gains, Nortel (NT) logged an operating profit of $368 million, or 55 cents a share. Analysts polled by First Call expected the Canadian firm to earn 50 cents a share in the quarter. Revenue increased 30 percent to $5.41 billion.
"Their revenue growth was very strong," said Tim Luke, an analyst at Lehman Brothers.
Factoring in the one-time items, Nortel recorded a loss of $145 million, or 21 cents a share.
On an operating basis, Nortel outpaced its year-ago performance, when it earned $212 million, or 40 cents a share, on $4.16 billion in revenue.
Prior to the earnings announcement, Nortel shares edged up 1/16 to close at 84-5/8 on the New York Stock Exchange. Its share rose to 86-5/8 in after-hours trade on the Instinet system.
Nortel shares have had a steady climb since October
Nortel, which last year acquired data networking firm Bay Networks, attributed its growth to strong demand for its Internet networking products.
"I am pleased with our strong growth in the quarter across our carrier segment in North America, Europe and Asia Pacific," said John Roth, Nortel's vice-chairman and chief executive officer.
Luke, who maintains a "positive" rating on Nortel, said the firm once again exhibited most of its strength in sales of broadband networking equipment. Broadband transmission, in which a single wire can carry several channels simultaneously, has become synonymous with high-speed Internet access.
Sales of broadband equipment is integral to the company's growth as fast Internet access becomes more prevalent. Roth said Nortel recorded better-than-50-percent growth in broadband equipment sales, adding the company expects that trend to continue.
Nortel also saw a recovery in its wireless communications systems business, which had underperformed in the two previous quarters. Roth said the firm's wireless systems unit achieved a growth rate "just shy" of 20 percent in the second quarter.
Y2K fears downplayed
Analysts had expressed worries that Year 2000 concerns would harm Nortel's performance later this year, fearing large corporations would be hesitant to commit to costly network upgrades until they had all their Y2K issues resolved. Roth, however, downplayed any such concerns.
"I feel a lot better about Y2K [than in previous quarters]," Roth said. "I don't think we'll see any Y2K issues on the carrier side of the business. The enterprise side is a little more mixed. The larger corporations are in good shape. The smaller companies are a bit more mixed."
Frank Dunn, Nortel chief financial officer, said the company is "well positioned to meet [analysts'] expectations for 1999."
For the first half of 1999, excluding charges and gains, Nortel posted a profit of $590 million, or 88 cents a share, on $9.83 billion in revenue, compared with first-half 1998 earnings of $352 million, or 67 cents a share, on $7.67 billion in revenue.
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Nortel
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