Nortel's Status Update Does Not Match Expectations

The hits just keep on coming for Nortel. The Canadian telecom and networking manufacturer's stock plunged (down 63 cents, or 15 percent, at midday) in the wake of its regularly scheduled bi-weekly status update, as CEO Bill Owens, admitted that the firms current business model is not hitting expected cost and performance targets.

Nortel is required to remain in conformance with the guidelines of the Ontario Securities Commission until the firm is current with filing obligations under Canadian securities laws. It is a condition placed on the firm since an accounting scandal this Spring led to the firing of Frank Dunn as chief executive -- replaced by Owens, who shifted over from the Teledesic subsidiary of Nortel.

But the shift in leadership has not yet translated into expected performance.

"As we move through 2004 and based on the work to date on our financial results, it is clear that our business model is not achieving our targeted operating cost performance of below 40% of overall revenues and our targeted gross margin percent of mid 40's," he said in a statement.

While the market is reacting badly to this news, Owens insisted that the long-term outlook for the firm is not bleak."I remain pleased with Nortel Networks market momentum and continue to expect our revenues in 2004 to grow faster than the market -- which we expect will grow in the low to mid single digits," he said.