7
Plunging sales and dwindling cash forced Nortel Networks Corp. to book one of the biggest quarterly losses in its history and lay off another 1,300 employees, including its top marketing and technology executives.
As the former technology giant hunkered into a defensive position, however, it gave no indication what action might eventually restore its strength.
The world's biggest supplier of telephone equipment said it is cutting 5 per cent of its remaining work force, as it intensifies efforts to preserve cash. Other steps include suspending dividend payments on preferred shares, scaling back research and development, cancelling pay increases and reducing general expenses.
“Improving cash and cash flow is a top priority for our company,” president and chief executive officer Mike Zafirovski said on a conference call.
Nortel Networks Corp.
The company posted a third-quarter loss of $3.4-billion (U.S.), largely because of an accounting measure.
Nortel said revenue plunged 14 per cent to $2.32-billion (U.S.) in the three months ended Sept. 30 as economic conditions deteriorated faster than expected.
The company's largest division, which sells gear to telecom companies, saw sales plummet 24 per cent in the quarter, a figure that will likely cause alarm to any potential buyer of Nortel's metro ethernet networks division, which the company put on the block in September to try to raise cash.
The timing of the sale has proved problematic and some analysts say the unit will only fetch about $500-million in the weak economy, half what they originally forecast. Nortel said yesterday it had no update to provide on the sale of the unit.
At least five senior executives will be leaving Nortel as part of the latest shakeup, including chief marketing officer Lauren Flaherty, the most senior female at the company, who arrived recently after 26 years at IBM Corp. Chief technology officer John Roese will also leave by the New Year. Mr. Roese has been Mr. Zafirovski's technological visionary, explaining to the markets how the company was pouring hundreds of millions of dollars into the creation of new communications software that would eventually replace some of the older equipment Nortel sells.
Yesterday, however, Mr. Zafirovski, was focused on more immediate results. He said his team has reorganized the structure of the company to remove duplicate expenses and put more control and accountability into each group. “We are acting quickly to become a simpler and leaner company, with the greater flexibility and responsiveness required to manage our business in a rapidly changing marketplace,” he said.
Kris Thompson, an analyst with National Bank Financial, called the latest round of reductions “shallow,” saying that a productivity analysis suggested at least twice as many cuts are necessary. He also speculated that the plan to restructure Nortel along three divisions – metro ethernet, carrier networks and enterprise solutions – could signal a willingness by management to sell off all the businesses.
Nortel said the job cuts would cost about $130-million in severance and other charges, but would produce annualized savings of about $190-million. It expects cost cutting to deliver about $400-million in savings during 2009.
The company said it expects to have $2.4-billion in cash on hand at the end of the year. Ratings agency DBRS Ltd. said the figure was less than its own original forecast and that it has put Nortel's debt under review with negative implications. Analysts estimate that Nortel is burning through about $700-million a year. It has more than $3-billion of debt due in 2011.
About $2.1-billion of the $3.4-billion quarterly loss was a writedown of deferred tax assets the company decided it would no longer be able to use after reducing forecasts of future taxable earnings. Another $1.1-billion related to goodwill.
The company said revenue this year would come in at the low end of guidance given in September, amounting to a 4-per-cent annual decline.
