Nortel Says Will Have Difficulty Reaching Q1 Targets

Nortel Networks Corp., whose chief financial officer quit Monday after being accused of insider trading, said Tuesday that weak customer demand will make it hard to meet first-quarter revenue targets.

The company's stock, already some 90 percent below 2000's boom-time peak, closed down 68 Canadian cents, or 6.2 percent, at C$10.25 on the Toronto Stock Exchange on Tuesday. Almost 17 million shares changed hands.

The shares were down 42 cents at $6.42 on the New York Stock Exchange, a drop of more than 6 percent from Monday's close. More than 15 million shares were traded.

But the telecommunications equipment maker, holding an analyst investors day, still insisted it would be able to return to profit by the final quarter of this year.

It promised a gradual growth in sales starting in the second quarter, although a previous forecast of sales dipping 10 percent in the first quarter from $3.46 billion in the fourth quarter will be a tough goal to meet.

"That is one subject that is more challenging," Chief Executive Frank Dunn told the investors meeting. "In the last 25 days it's more evident customers are not going to spend any capital that they don't have to."

After markets closed Monday, Nortel said its chief financial officer, Terry Hungle, had resigned after buying and selling company stock in violation of company policy.

Hungle, a 20-year veteran of the company, sold stock in his U.S. 401K retirement plan before the company issued an earnings warning March 27 last year, and bought stock back in December, just before a positive earnings announcement.

The first transaction involved stock worth $78,500, and the second transaction involved stock worth $86,300. Both had been reported to regulators in Canada and the United States.

Nortel said Hungle had broken the company's stock trading rules. But it took pains to stress the transactions related to Hungle alone and were not part of a wider accounting scandal of the type that brought down U.S. trading firm Enron.

"There is no discussion with the regulators on Nortel's business, its operations or any of the financial accounting," said Dunn.

Dunn said he would not take questions on this issue. But he stressed that the issue "all focused on Terry and his personal trades."

Nortel said Tuesday that it expected its bottom line performance to improve as the year goes on.

"We continue to expect an ongoing steady improvement from our fourth quarter 2001 performance and to return to profitability in the fourth quarter of 2002," the statement said.

"While we continue to expect that revenue for the first quarter of 2002 will be lower than the fourth quarter of 2001 revenue by approximately 10 percent, we note that activity over the last 25 days has indicated even more resolve by customers than originally anticipated to minimize spending in the near term and this will make the task of delivering our first quarter sales outlook more challenging."

Nortel is one of the world's largest makers of telecom equipment.

Its second quarter loss last year of $19.2 billion was at the time one of the largest quarterly losses on record, although that figure has since been dwarfed by news from other firms as companies write down the value of assets acquired during the boom of technology shares.

($1-$1.59 Canadian)

Reuters contributed to this report.