Nortel posts 2Q profit thanks to shareholder lawsuit settlement

Nortel posted a profit in the second quarter, thanks to a settlement from a shareholder lawsuit. The vendor reported a net income of $366 million, or 8 cents per share, compared with a loss in 2005 of $33 million, or 1 cent per share. It was able to report a net income because of an accounting gain of $510 million connected to the value of stock included in the settlement. But competition and the lackluster market for network equipment is putting pressure on profitability. The company's gross profit margin of 39 percent fell from 43 percent a year earlier, hurt by pricing pressure and an unfavorable product mix, Nortel said. For investment research firm UBS, the disappointment came in the circuit and packet voice solutions segment in both the mobility and the enterprise business units and in CDMA. Mobility packet voice sales decreased across all regions while enterprise packet voice sales were impacted by one-time events. CDMA sales were impacted by reduced spending in North America.

Nortel declined to confirm whether it was selling its UMTS business to Alcatel, but President and CEO Mike Zafirovski told analysts that Nortel would look for a partner or buyer for the access portion of its UMTS business.

For more about Nortel's second-quarter results:
- check out this report from The Wall Street Journal (sub. req.)