Nortel Networks Corp. easily beat forecasts yesterday as fourth-quarter sales rose 7 per cent from the third quarter, marking the first sequential increase since the telecom network equipment boom came to a screeching halt two years ago.

"Nortel's business has basically stabilized," said Frank Dunn, Nortel president and chief executive officer. "We're going to move away from managing the company in a restructuring mode."

Sales in the October-December period were $2.52-billion (U.S.), up from $2.36-billion in the July-September period but down 27 per cent from $3.46-billion in the fourth quarter of 2001.

The company recorded a fourth-quarter loss of $248-million or 6 cents a share, a notable improvement from the loss of $1.83-billion or 57 cents a year earlier. On a pro-forma basis, which excludes costs and does not conform to generally accepted accounting principles, the company lost 1 cent a share -- better than an expected share loss of 6 cents and last year's pro forma share loss of 16 cents.

"Very impressive," said Tom Lauria, an independent analyst at Avtera Management LLC in New Jersey who does not own Nortel stock. "You couldn't ask for better results right now. You have to give credit to Frank Dunn. I think Dunn could turn out to be a hero."

Nortel's results were better than those from rival Lucent Technologies Inc., issued Wednesday, Mr. Lauria said, pointing out that Nortel has made more progress in cutting costs to deal with weak demand for its products.

Other equipment makers, such as optical parts maker JDS Uniphase Corp., also weren't as impressive -- given industry conditions -- as Nortel.

Doug Beatty, chief financial officer, said the company will have about 36,000 workers at the end of March, 1,000 more than previously was planned.

Nortel had a peak work force of about 95,000.

The fourth quarter is generally the strongest for the network equipment market. Nortel reported better sales -- on a sequential basis -- in each of its four divisions, including the hard-hit optical segment.

Stock of Nortel jumped in early after-hours trading, rising 8 per cent to $2.60 from its $2.40 close on the New York Stock Exchange. In Toronto, the stock closed at $3.66 (Canadian) and is up 45 per cent this month.

However, the stock remains down 97 per cent from its July, 2000, peak of $124.50 each.

Nortel's struggles, however, are not over, the company said. Sales this quarter, ending March 31, will be lower than the fourth quarter. The Brampton, Ont.-based company said 2003 sales will fall somewhat from the $10.56-billion (U.S.) booked in 2002.

The company wasn't more specific: "I'm out of the forecasting game," Mr. Dunn said.

Still, he suggested the company could surprise observers with a strong end to 2003.

"Having said that, I'm cautious, especially in the first half of the year," Mr. Dunn said on a late conference call after results were released following the close of markets.

Nortel repeated its goal of breaking even on a pro forma basis in the second quarter this year.

On the liquidity front -- which was a big worry last September -- Nortel said it had $4.11-billion in cash on its balance sheet as of Dec. 31, down from $4.59-billion at the end of September. The company recorded positive cash flow from operations in the fourth quarter.

"We have an excellent cash position," Mr. Dunn said.

Nortel said it bought back some of its debt during the fourth quarter, helping cut long-term debt to $3.72-billion at Dec. 31 from $4.11-billion at Sept. 30.

The company has decided to treat stock options as a business expense on its income statement, a growing trend among major companies in North America. Should Nortel issue a similar number of options this year as last, the decision will cost the company 1 cent a share.

Nortel also issued full-year 2002 results yesterday. Sales fell 40 per cent to $10.56-billion from $17.51-billion in 2001. The company lost $3.59-billion or 93 cents a share, vastly better than the $27.3-billion or $8.56 a share lost in 2001.

Before the markets opened yesterday, Nortel said it had settled a patent infringement lawsuit against rival equipment maker Ciena Corp., ending a legal tussle that began in March, 2000, when Nortel sued ONI Systems Corp. Ciena now owns ONI and will make a one-time payment of $25-million to Nortel, gaining a licence for several fibre-optic patents. The two companies said they would not sue each other for the next two years over patents, hoping instead to negotiate cross-licence agreements.