TORONTO (Reuters)- Nortel Networks Corp reported a $3.4 billion quarterly loss on Mondayand announced a round of sweeping new cost cuts, including 1,300layoffs, as a global economic downturn erodes its business and strainsits balance sheet.
The economic downturn also forced Nortel, North America’s biggestmaker of telephone gear, to cut its 2008 outlook again, astelecommunications customers reduce spending on equipment. The newspushed Nortel’s stock, once valued at more than C$1,100 a share, downanother 18 percent to C$1.22.
The new job cuts represent about 5 percent of Nortel’s roughly30,000-strong workforce. The company said it would also freeze salaryincreases, cut back on consultants and review its entire real-estateportfolio.
The moves are Nortel’s latest response to a rapid deterioration ofthe business environment that the company had highlighted earlier thisfall, Chief Executive Mike Zafirovski said during a conference call.
"I can assure you that the sense of urgency which we had inmid-September has only accelerated these last two months," he said."This is a critical time for Nortel."
Several senior executives will leave the company early next year as the company streamlines its operations, he said.
The company said the latest cost-cutting, along with the movesannounced earlier, will lead to annual savings of about $400 million in2009.
But the new moves will also mean total charges to earnings and cash outlays of about $130 million.
The cost cuts notwithstanding, Nortel’s balance sheet and itsbusiness setbacks make the company attractive only to investors whobetting that it will be broken up or sold, said Duncan Stewart,president of Duncan Stewart Asset Management in Toronto.
"It only exists as a possible speculative break-up value play," hesaid. "As Nortel exists today, it cannot become a successful globalleader in the telecom equipment industry."
The Toronto-based company posted a third-quarter loss of $3.4billion, or $6.85 per share, compared with a year-earlier profit of $27million, or 5 cents a share.
The loss included a tax adjustment of $2.07 billion and a $1.14 billion writedown of goodwill.
In September, the company said 2008 revenue would fall between 2percent and 4 percent. Now, just two months later, Nortel said thedecline would be at the high end of that range.
"In light of the economic and market conditions … Nortel continuesto experience significant pressure on its business and thedeterioration of its cash and liquidity," the company said.
In the latest quarter, revenue fell to $2.3 billion from $2.7billion, in line with analyst expectations, according to ReutersEstimates.
NO UPDATE ON METRO ETHERNET
The company provided no update regarding the potential sale of itsMetro Ethernet Networks business, which includes its optical andcarrier ethernet technology.
In September, it said it wanted to sell the unit, which accounts forabout 14 percent of revenue. The financial crisis has meant manywould-be buyers are preserving cash rather than spending it onacquisitions.
Nortel also said it would suspend dividends on two series ofpreferred shares issued by its main operating subsidiary. Although itis able to pay the dividends, Nortel said its board decided that "inthis uncertain economic environment it would be prudent to maintainliquidity and preserve cash."
Nortel has suffered as telecommunications companies scale backspending on equipment and upgrades. Meanwhile competition hasstiffened, both from North American and European players such asAlcatel-Lucent and from low-cost Asian vendors like Huawei Technologies.
Since 2001, Nortel has lost billions of dollars, shed thousands ofjobs and has been unable to turn a consistent profit because of suchfactors.
The company’s workforce has shrunk from a peak of 90,000 in 2000,before the technology bubble burst. Still, the 1,300 layoffs announcedon Monday were actually fewer than the 3,000 to 5,000 that analysts hadexpected.
On Monday, Nortel shares fell 27 Canadian cents, or 18 percent, toC$1.22 on the Toronto Stock Exchange. In mid-2000, they were worth morethan C$1,100 each, adjusted for a stock consolidation that took placein late 2006.
($1=$1.19 Canadian)
(Reporting by Wojtek Dabrowski; editing by Frank McGurty)
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