Nortel Networks Corp is looking for mid to high single digit revenue growth in 2006 as the company engages on a transformation designed to turn it into a lean operator with a product range that is optimized for the growth areas of the networking market.
The Toronto, Canada company is still a work in progress under CEO Mike Zafirovski and in its third quarter it cut its net loss from $136m to $99m on sales 17.4% higher at $2.95bn.
But with gross margin of 38% below expectations and higher costs, the shares fell 6.28% to $2.30. That, at least, will change soon as a ten for one share consolidation will give Nortel’s price a more respectable look.
Zafirovski’s intent now is to transform the company by driving $1.5bn out of the costs base by 2008 and he has made accountability prominent by naming the team heads in each sector and the contribution they will have to make to the target.
Short term, there is unlikely to be a dramatic transformation of the company and Nortel acknowledged that margins will inevitable be lower with the roll out of so many new products. But seeking partnerships to cover area of weakness, Nortel has targeted revenue of $1bn from its agreement with Microsoft Corp for the unified enterprise communications market.
Microsoft CEO Steve Ballmer said in Tokyo on Monday that it was to enter the VoIP market at the beginning of next year, unified with e-mail, video and instant messaging.
Mobility and converged core networks remained the top performer for Nortel with revenue up 23% to $1.54bn, while enterprise networks increased sales 14% to $609m. Metro Ethernet networks remained strong with revenue up 8.5% to $430.
While global services, which Nortel sees as a strong and reliable performer in the future, only increased revenue by 4.6% to $316m, the figure is soon to be boosted by installation revenue, which previously has been counted under product sales.
The company refused to be drawn on a forecast for 2007. However it will have a hard job to record revenue gains after the $320m sale of its UMTS access business to Alcatel SA.