Nortel to cut 5,000 more jobs

Nortel to cut 5,000 more jobs
REUTERS

WASHINGTON, MAR 28: Nortel Networks Corp said its first-quarter results will fall well short of already-reduced targets, as the slowdown in telecommunications spending spreads beyond North America.

The big telecom-equipment maker, based in Brampton, Ontario, also increased the number of jobs it is cutting to 15,000 from 10,000 and withdrew its financial forecasts for the full year, citing “the poor visibility into the duration and breadth of the economic downturn”. “We continue to feel the impact of the economic downturn in the US and are now seeing customers globally assess its effect on their businesses,” said John Roth, Nortel’s president and chief executive officer.

There are “early signs of impact outside the US,” a Nortel spokesman added.Nortel said it now expects an operating loss of between 10 cents and 12 cents a share for the first quarter. Last month, Nortel’s stock plunged after the company slashed its first-quarter and full-year financial forecasts, blaming a sharp and sudden curtailment in communications-network building in the US Nortel at the time said it expected a first-quarter loss of four cents a share, compared with previous forecasts of a healthy profit, but still expected full-year revenue to climb by 15 per cent and full-year operating earnings to rise 10 per cent.

Nortel also reduced its expected first-quarter revenue to between $6.1 billion and $6.2 billion, down slightly from its previous estimate of $6.3 billion. Capital-spending reductions and deferrals by Nortel customers and “increased pricing pressure are resulting in lower overall revenues,” Mr Roth said. Shares of Nortel sank $2.16, or 13 per cent, to $14.60 in after-hours trading Tuesday, from $16.76 at 4 pm in New York Stock Exchange composite trading.

The slowdown is hitting Nortel in various ways. As telecom carriers pull back their network building, they require less fibre-optic and wireless networking equipment at a time when Nortel and others have stepped up production of such gear. Where carriers were once hard-pressed to secure the supply of enough equipment, they now can demand discounts and choose from various vendors, analysts say.

“There’s no doubt there’s a price war” among telecom-equipment vendors, said Paul Sagawa, a telecom analyst with Sanford C Bernstein & Co in New York. On top of that, he said, financial difficulties at some carriers are causing them to sell used equipment, adding to the supply, a problem that could intensify. “There are a lot of carriers that could go out of business,” Mr Sagawa said. Further, existing customers of Nortel are likely stretching out their payments on equipment already ordered, analysts said. Nortel customer 360networks Inc., a Vancouver, British Columbia, telecom carrier, for example, recently said it is delaying payments to its customers, but didn’t specify Nortel. A Nortel spokesman declined to comment.