Observers who have been frustrated by the lack of news and continued delays out of Nortel's bankruptcy process got a little bit of objective news this morning, in the form of the company's first-quarter financial report.Overall, Nortel revenues fell 37% year-over-year, to $1.73 billion for 1Q09. The Enterprise Solutions unit fared even worse, tumbling 41% year-over-year to $395 million in 1Q09, down from $668 million in the year-ago quarter. Enterprise's quarter-over-quarter revenue decline was 34% versus 4Q08, slightly below the overall 36% decline for Nortel.
Breaking down the Enterprise numbers, Communications Solutions, i.e., equipment, was down almost 49% year-over-year, from $527 million a year ago to just $271 million in 1Q09. The Services business for Enterprise took less of a hit, falling just 12% Y/Y, from $141 million to $124 million.
In its press release, Nortel attributes the decline in Enterprise revenues specifically to "decreased customer spending and decision-making deferral due to the economic conditions and the uncertainties created from our Creditor Protection Proceedings."
However, the release also quoted CEO Mike Zafirovski as follows:
First quarter results showed a decline in revenue and margins as expected due to the severe economic downturn and our filings for creditor protection. However, despite the declines we saw this quarter, revenue has stabilized and our cash balance is stable from year-end 2008.
Indeed, Nortel reported having a cash balance of approximately $2.48 billion, which is actually slightly above the $2.4 billion it had at the end of 4Q08, which was essentially the cash balance Nortel had when it filed for bankruptcy protection on January 14, 2009.
Finally, the release notes that Nortel is going ahead with its planned internal business unit restructuring:
The evaluation of Nortel's businesses - Carrier Networks (which includes Wireless Networks as well as Carrier VoIP and Application Solutions or CVAS), Metro Ethernet Networks, Enterprise Solutions and the LG-Nortel joint-venture--is ongoing. As noted, the Company is taking appropriate steps to complete the move to standalone businesses initiated in late 2008. This will provide Nortel with maximum flexibility to choose the ultimate path forward for each of the businesses.
To achieve vertically integrated and fully independent business units, Nortel will decentralize its Carrier Sales and Global Operations functions over the coming weeks. This will enhance the business units' overall responsiveness to changing customer and market requirements and provide the opportunity to better serve customers.
It is imperative that the independent business unit structure benefit from a streamlined shared-services organization to drive maximum efficiency. Therefore, the Company will expand the Nortel Business Services (NBS) organization to include operational and other functions from Global Operations, Corporate Operations and Finance.
To achieve vertically integrated and fully independent business units, Nortel will decentralize its Carrier Sales and Global Operations functions over the coming weeks. This will enhance the business units' overall responsiveness to changing customer and market requirements and provide the opportunity to better serve customers.
It is imperative that the independent business unit structure benefit from a streamlined shared-services organization to drive maximum efficiency. Therefore, the Company will expand the Nortel Business Services (NBS) organization to include operational and other functions from Global Operations, Corporate Operations and Finance.
It may be tempting to read something prophetic in the entrails that Nortel laid out before us today, but the truth is that the situation is fluid and the only immutable principle is that bankruptcy requires Nortel's management to get the most value for the company's creditors. Since the outcome is uncertain, Nortel has to simply press on until there's a resolution.
