Nortel Networks Corp said its fourth-quarter loss will be smaller than analysts' estimates. Shares of North America's second-biggest maker of phone equipment rose 12 percent.
Nortel forecast a loss of US$0.16 a share, excluding US$1.53 billion in costs from job cuts and acquisitions. Analysts had expected an US$0.18 loss, according to a Thomson Financial/First Call survey. The company also said it extended a line of credit and will eliminate 3,000 fewer jobs than planned.
Chief Executive Frank Dunn, who took the helm Nov. 1, is continuing a strategy of shedding jobs, businesses and product lines to stem costs and return Nortel to profitability as demand slows. After archrival Lucent Technologies Inc said last week that its sales this quarter would miss estimates by more than US$1 billion, some Nortel investors expected a similar shortfall.
"It [had] looked like the fourth quarter was just falling apart," said Shawn Campbell, an analyst with Northern Trust Corp, which owns Nortel shares. "There's a bit of relief it wasn't as worse as it could be."
Still, Nortel's fourth-quarter sales will fall to $3.4 billion from the third-quarter's US$3.69 billion. That's the fourth straight quarter-to-quarter drop and less than the $3.5 billion expected in a First Call survey. In the year-ago period, Nortel had sales of US$8.8 billion.
"It's kind of hard to get too excited," Campbell said.
Nortel shares, which climbed US$0.77 to US$7.13, have fallen 78 percent this year.
Shares of some Nortel competitors and suppliers also rose.
Tellabs Inc surged US$1.11, or 8 percent, to US$14.97. JDS Uniphase Corp rose US$0.25 to US$8.45 and Ciena Corp increased US$0.42 to US$14.43.
The company's US$0.16 loss estimate excludes US$900 million in acquisition-related expenses, such as a goodwill writedown, and US$630 million from the job cuts. It also removes discontinued operations and gains or losses on the sale of businesses and investments. The figure doesn't conform with generally accepted accounting standards.
Including those items, Nortel said its loss will be US$0.63 a share, wider than the year-ago period's loss of US$0.46. The company, based in Brampton, Ontario, has reported losses of than US$25 billion in the first nine months of the year. Nortel said its cost cuts, completed this quarter, will enable the company to break even, before certain expenses, at quarterly sales of "well below" US$4 billion.
"With about a 15 percent increase from their fourth quarter revenue needed to return them to profitability, I would expect them to be in good shape once the economy rebounds," said Michael Cohen, who manages the Alpha Analytics Digital Future Fund, which owns Nortel shares.
Nortel reached an agreement with its banks to extend its credit facility to Dec. 13 next year, from June 14, though the maximum amount on which the company can draw dropped to US$1.58 billion from US$2 billion. The new accord also changes the covenants that require Nortel to maintain certain targets for net worth and earnings, excluding interest, taxes, depreciation, amortization and other costs and gains.
"While this agreement gives them less lending ability, it's given them more useful lending ability by changing the covenants," said Steve Mygrant, a money manager at Fifth Third Bancorp, which owns Nortel shares. "If you've got a line of credit you can't use, that's not a line of credit."
Nortel must have a net worth of at least US$1.88 billion, and it may report a first-quarter loss, before interest, taxes, depreciation, amortization and other items, of no more than US$500 million, according to a recent US Securities and Exchange Commission filing.
Nortel also agreed to minimum Ebitda covenants for the rest of next year and the first three quarters of 2003, according to the filing. The company didn't elaborate other than to say it must improve its results during the next two years.
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