With earnings boosted by a non-cash gain of $510m related to shareholder litigation, it turned a $33m loss into income of $366m in the second quarter to June 30 on income 4.8% higher at $2.74bn.
Zafirovski apologized to the margin-obsessed Wall Street analysts that the gross margin was up only modestly and not at the 40% target, though it had strong order growth of 22%.
Mobility and converged core networks revenue increased 7% to $1.59bn and strong CDMA revenue growth is expected in the second half as it rolls out an upgrade to Verizon Wireless.
However, in enterprise solutions and packet networks revenue fell 1% to $1.07bn. But the company concedes that quarterly revenue can be lumpy due to revenue-recognition issues.
The problem for Nortel is that while it is performing far better in telecoms than the other North American player Lucent, that under-performing company will soon have the strength of Alcatel behind it.
Similarly, Ericsson has beefed up its operations with the acquisition of Marconi and Nortel is absorbing Siemens telecoms business.
Nortel’s approach has to seek strength through alliances. Zafirovski unveiled the biggest in July when it linked up with Microsoft Corp to tackle the unified enterprise communications space, where all the players are dwarfed by Cisco.
It already has a 50-50 partnership with LG Electronics that gives it access to the South Korean company’s strength in Asia.
Zafirovski says he has now completed the top management team so the coming year will show how far the company’s transformation is reflected in results.
