Nortel warns of tough quarter prior to investor talk

Nortel Networks on Tuesday told investors that weak demand for its telecommunication and network equipment among carriers will make the first months of 2002 a challenging quarter for meeting revenue forecasts.

Last month, Nortel said it expected revenue in the first quarter of 2002 to be about 10 percent less than the US$3.46 billion posted in the fourth quarter of 2001. But company executives Tuesday said it would be difficult to achieve that goal.

Nortel's warning came just before a scheduled conference with investors, in which executives detailed the company's strategy and outlook for the year, and a day after the resignation of its chief financial officer over potentially improper stock trades.

Terry Hungle, Nortel's chief financial officer, resigned after the company said it had voluntarily notified the U.S. Securities and Exchange Commission (SEC) and the Ontario Securities Commission of the circumstances surrounding some of his personal investment transactions last year.

Hungle apparently made trades within his personal 401(k) account ahead of two Nortel financial press releases and outside of trading windows designed to keep corporate officers from trading on inside information, according to the company.

Nortel largely reiterated familiar themes in its presentation to investors. The company will maintain "a laser-like focus" on high-margin products, with a pared-down product portfolio for the largest 50 carrier customers, said Frank Dunn, Nortel's chief executive officer.

Nortel projects wireless communication traffic to double by 2005, with data becoming an increasing share of the transmissions. The company expects increasing carrier investment in CDMA (Code Division Multiple Access) for next-generation wireless networks and wave division multiplexing in terrestrial networks.

Carriers have cut spending on new equipment as a reaction to the economic downturn, with the largest local carriers' equipment budgets down an average of about 20 percent from the previous year. Nortel has seen a renewed commitment in the last 25 days from carriers to save money, prompting its revenue warning, the company said in a release.

Despite the revenue warning, the company maintains its projection of reaching profitability targets for fourth quarter of 2002.

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