Nortel (NYSE: NT) is back in the red.

The telecommunications gear manufacturer reported a $99 million loss, or 2 cents per share, for the third quarter on Tuesday. Wall Street analysts had expected a 1-cent-per-share profit.

Revenues did increase to $2.96 billion, or 17 percent higher, from $2.52 billion in 2005.

Nortel reported a $366 million profit in the second quarter.

The company also announced a stock consolidation move of 1-for-10, designed to reduce its available shares of 4.34 billion.

The quarterly report and stock consolidation news sent Nortel shares down 14 cents, or 6 percent, to $2.25 in morning trading.

Nortel Chief Executive Officer Mike Zafirovski also warned that Nortel faces challenges to regaining profitability.

“I am pleased with our overall revenue growth and, in particular, in our focus areas of next generation mobility, enterprise and related services, and metro optical,” he said in a statement.

Noting that Nortel had improved its operating margins, he added that work remained to be done.

“(W)e should and will be moving faster,” he said. “Pricing pressures and the speed at which our revenues are shifting to next generation, early cycle products is increasing our challenge to drive profitability improvements.”

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