Nortel saw its shares fall sharply yesterday after the company warned it had more work to do on cutting costs and improving margins.

Shares fell 15 per cent to $3.51 after the firm said sales were holding up, but it was not making enough progress in improving margins. Last month it sold off its manufacturing plants to Flextronics. The company is still working on restating its accounts for the last three years. Nortel is under investigation by US regulators and the Mounties. It is also facing class action suits from investors.

Bill Owens, president and CEO of Nortel Networks, said: "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).

"However, 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 (SG&A and R&D) performance of below 40 per cnet of overall revenues and our targeted gross margin percent of mid 40s."

Owens will detail the cost-cutting plans in mid-August when the company releases results for the first half of 2004. Canadian regulators insist Nortel update the market every two weeks. The full statement is here. ®

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