Higher margins help Nortel return to black

Nortel Networks' equipment sales shrank in the third quarter, but higher margins helped returned to the black with a $27 million net profit.

Revenue was down 8% year-on-year to $2.70 billion, or 2% taking into account the sale of its UMTS access business.

But CEO Mike Zafirovski said the 5% operating margin was the highest in three years and the gross margin the highest in nine quarters.

He said he was encouraged by the increase in orders, up 9% over last year when adjusted for the UMTS sale.

'With an ongoing focus on customers and execution, we expect to continue to deliver operational and financial improvements in the fourth quarter and beyond,' Zafirovski said.

Nortel's NYSE-listed stock rose 17.81% after release of the result overnight.

Sales contracted in Nortel's biggest division, carrier networks, by 19.2% to $1.08 billion, while metro networks shrank 13.5% and global services were flat. But enterprise sales were up 17.5%, helped by Nortel's unified communications partnership with Microsoft, which has signed more than 300 joint customers and 900,000 licenses.

Nortel said its $35 million deal with the SEC in October had settled all issues with the regulator. The funds had been set aside earlier this year and did not impact the third quarter result.