Nortel Networks achieved a measure of financial recovery in the third quarter as it posted a small profit even while revenue for most of its businesses fell.

The carrier and enterprise network vendor, emerging from years of mismanagement and still struggling against bigger rivals, ran a tighter ship during the quarter. Its operating expenses fell 3 percent and operating margin was Nortel's biggest since 2004, the company said.

That helped Nortel post net income of $27 million and earnings per share of $0.05, turning around from a net loss in the same quarter last year of $63 million or $0.14 per share.

But revenue fell 8 percent from a year earlier to $2.7 billion. Part of this was due to Nortel's sale last year of its UMTS (Universal Mobile Telecommunications System) business: Excluding that impact, revenue fell just 2 percent. But even discounting it, the company's sales to carriers fell 11 percent. Only the company's enterprise business posted higher revenue with an 18 percent boost from a year earlier to $671 million. Nortel's services business had flat revenue.

The enterprise business has posted revenue gains for five consecutive quarters now, according to Nortel. In a news release, the company cited gains in all product portfolios and said its joint venture with Microsoft for unified communications has gained more traction. The companies have more than 300 joint customers and 900,000 licenses for their system, which combines Nortel telephony products and services with Microsoft software.

President and CEO Mike Zafirovski has tried to restructure and resize Nortel to be more competitive against Cisco Systems and other rivals. Nortel is overshadowed by Cisco in the enterprise business and faces a tougher challenge in the carrier network business, where there are fewer customers due to consolidation and competition from Asia is growing. Costs have come down as a result of Zafirovski's efforts: The company's third-quarter research and development spending was 12 percent lower than in last year's third quarter. The sale of the UMTS division and lower employee costs accounted for much of that drop, the company said.

But the revenue picture isn't expected to get much better. Nortel forecast revenue to be flat in the fourth quarter and down slightly for the full year compared with 2006.

Microsoft's chief financial officer outlined a three-part plan the company will undertake to weather the current economic crisis, which spurred Microsoft to lower its revenue and earnings expectations for fiscal 2009 on Thursday.

Microsoft will focus on lowering customers' total cost of ownership, tighten its own spending to encourage operational efficiency, and choose its investments carefully in the near term as the U.S. and global economic outlook continues to be volatile, Microsoft CFO Chris Liddell said on a conference call Thursday.

[ Learn more about how the financial crisis is affecting IT and the high-tech industry, plus what IT can do to help, in InfoWorld's special report. ]

"There's a high degree of uncertainty in outlook based on the state of the economy," Liddell said. "We can't control the economy, but we can control our overall performance in regard to [it]."

As part of its fiscal 2009 first-quarter financial announcement, Microsoft on Thursday lowered its financial outlook for both second-quarter and full-year 2009 results. The company fears that PC spending may be lower than expected, which would negatively affect its Windows client business. Along with its Business Division, which includes Microsoft Office, the company derives the bulk of its revenue from its client business.

New guidance for the second quarter, which ends Dec. 31, is in the range of US$17.3 billion to $17.8 billion for revenue and $0.51 to $0.53 for diluted EPS. Previously, the company said it expected about $18 billion in revenue with EPS of $0.55 for the second quarter. For the fiscal year, revenue is now expected to be in the range of $64.9 billion to $66.4 billion, with EPS in the range of $2 to $2.10. Previously, Microsoft had expected revenue in the range of $66.59 billion to $67.1 billion, and EPS to be between $2.11 and $2.18.

To lure and retain customers who are looking "to do more with less" in the challenging economy, Liddell said Microsoft will focus on providing "high-value products at a low total ownership cost as a competitive advantage." He cited products such as its Hyper-V virtualization software for Windows Server and its unified communications software as ways companies can use IT infrastructure to reduce business costs.

As part of its own plan to manage its expenses, Microsoft will decrease its spending $500 million for the remainder of its 2009 fiscal year, which ends June 30, he said. The company also will lower headcount costs by revising hiring strategies and cutting employee costs such as travel expenses, Liddell said.

Microsoft also plans to lower its marketing expenses to keep the company running efficiently, he said. In this area, the company recently spent $300 million on a marketing and advertising campaign for Windows Vista, which already has been spoofed by competitor Apple in television ads.

Microsoft also will invest only in "key opportunities" for growth as the economic climate remains uncertain, he said. Liddell did not address the possibility of Microsoft making another bid for Yahoo, although recently CEO Steve Ballmer said publicly that a deal between the two companies would still make sense economically.