Nortel Falls Short in Long Haul

Nortel Networks Corp.'s (NYSE/Toronto: NT) downward spiral continues. In its attempts to cut costs and lower its break-even point, the Canadian telecommunications equipment giant announced today that it will cut 3,500 jobs from its optical long-haul business, and it may sell its optical components unit (see Nortel Sees Flat Q2).

Nortel, which once had approximately 100,000 employees on its payroll, said today that it expects its workforce to drop to 42,000, down from last month's target of 44,000. At the end of last quarter, the company employed 47,000 people. The downsizing is expected to be completed by the end of the third quarter (see Nortel's World is Flat).

The latest job cuts and the potential sale or resizing of the optical components unit come as Nortel tries to "streamline" its optical long-haul business, which it doesn't expect to recover until late 2003 or early 2004. The company has previously stated that it wants to back away from the optical industry and concentrate on its wireless business.

David Chamberlin, a Nortel spokesperson, insisted today that the announced cuts will only involve the company's long-haul business and shouldn't affect other Nortel divisions.

The reorganization of Nortel’s optical long-haul business will result in a $600 million charge, with $200 million coming in cash. Most of the charge will be recorded in the second and third quarters, the company said. This charge comes in addition to the $150 million charge the company has said it would take this quarter related to previous layoffs. The company claims to have enough money available to fund the announced restructuring, as well as continued operations. In today’s statement, Nortel also says it expects to remain in compliance with its covenants under various bank facilities.

But many big questions still exist. One centers around any potential sale of the optical components division. Because most of the larger optical components players -- namely, Agere Systems (NYSE: AGR) and JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) -- are suffering similar financial problems in the same industry downturn, it seems unlikely that any would be in a position to pay a significant amount for Nortel's business.

In a note published today, however, Bill Lesieur, the director of Technology Business Research Inc. (TBR), stated that the latest cutbacks, layoffs, and declining revenue “may lead Nortel to becoming a casualty of industry consolidation.” In the note, he points out that Nortel seems to be having a harder time weathering the storm than major competitors Lucent Technologies Inc. (NYSE: LU) and Alcatel SA (NYSE: ALA; Paris: CGEP:PA).

Nortel is, of course, hoping the cuts will help it get on the fast-track back to profitability, and the firm claims they will enable it to lower its break-even cost structure to about $3.2 billion of quarterly revenues (not including costs related to acquisitions and any special charges or gains), down from a previous target of approximately $3.5 billion. Nortel says it expects the cost structure to be in place by the fourth quarter this year.

The Toronto-based company reconfirmed today that it expects to see improvements in its pro forma net loss this quarter, compared to last. But don’t start celebrating yet. The company also lowered its revenue guidance for the current quarter, saying its revenues may drop as much as 5 percent over the quarter. This is opposed to the flat revenue forecast it gave just a month age.

The drop in revenues should come as no surprise. Nortel has seen its sales and shares plummet in the wake of the telecom crunch, which has literally taken out many of its main customers, while leaving others quaking and determined to spend as little as possible on equipment until the meltdown is over.

In afternoon trading today, the company's shares dropped 9 cents (3.57%) to $2.43. Over the last year, the company's stock has lost more than 80 percent of its value.

— Eugénie Larson, Reporter, Light Reading

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jgh 12/4/2012 | 10:19:48 PM
re: Nortel Falls Short in Long Haul What exactly has Frank Dunn since he became CEO, lay off more people and sell off units. He is not the person to be running a company during the downturn. He doesn't inspire any confidence or loyalty from the remaining 42,000 employees. He is hiding in his shell like a tortoise. Even with his financial background, the analysts don't respect him as he continues to change the numbers when Nortel will make money.
Scott Raynovich 12/4/2012 | 10:19:47 PM
re: Nortel Falls Short in Long Haul Huh?

from the story:

" ...and it may sell its optical components unit (see Nortel Sees Flat Q2 ).

from the Nortel press release:

"The plan includes the potential sale and/or resizing of the optical components business. "

dljvjbsl 12/4/2012 | 10:19:47 PM
re: Nortel Falls Short in Long Haul In respect to Dunn, this decision is in line with his announced policy of concetrating on the metro and enterprise areas. This is a good stratwgy. With the long haul business as dead as it is, it was also probably an inevitable strategy. Even with this inevitablity, it is a mark of a good manager that his strategies reflect the reality of the marketplace. Lesser managers, which includes the previous CEO of Nortel, tend to stubbornly stick to a prized strategy even if the marketplace has shown its deficiencies.

Dunn should be congratulated for this decision. I hope that a sale is possible to limit the effects on the employees involved. However Dunn cannot be blamed for the hardship casued by the failure of the previous optical strategy. He is only accepting the reality of what has happened in the industry.
dljvjbsl 12/4/2012 | 10:19:47 PM
re: Nortel Falls Short in Long Haul
The story being put out elsewhere is that it is only the optical componets business that is being affected. The Lightreading story reads as if other Nortel components are being affected.
dljvjbsl 12/4/2012 | 10:19:46 PM
re: Nortel Falls Short in Long Haul

from the story:

" ...and it may sell its optical components unit (see Nortel Sees Flat Q2 ).

from the Nortel press release:

"The plan includes the potential sale and/or resizing of the optical components business. "

You may be correct but the story as reported in Canada is that only the optical components business is being affected by this decision. No other business units will be affected. At least this is how it is being reported on the CBC.
Scott Raynovich 12/4/2012 | 10:19:45 PM
re: Nortel Falls Short in Long Haul Mr. dljvjbsl, dude, you sound confused. Nortel has an optical components division. At one time they were talking about spinning it off into an IPO. This is the thing they are talking about selling. This is what's discussed in the story.

I'm unaware of any other sort of "components" division existing at Nortel.
dodo 12/4/2012 | 10:19:45 PM
re: Nortel Falls Short in Long Haul From the baby's mouth ( oops Nortel website):


"Nortel Networks also announced plans to further realign its Optical Long Haul business, including optical components, to the current market conditions given that it does not expect a meaningful recovery in the long haul optical market before late 2003/early 2004".

Optical components does not have the adjective "long" attached to it and it is understood that it is plainly: optical components .

I don't see how they could segment the long-haul optical components from HPOCS anyway.

UTPA98 12/4/2012 | 10:19:44 PM
re: Nortel Falls Short in Long Haul What else do U expect from a bean counter, eh?
umustbejokin 12/4/2012 | 10:19:43 PM
re: Nortel Falls Short in Long Haul Scott;
I guess you've never heard of an ASIC!
techdocs 12/4/2012 | 10:19:41 PM
re: Nortel Falls Short in Long Haul LOOK! At the numbers, Nortel is GOING BANKRUPT! There is not One Shred of Doubt. You have to be very ignorant to even think otherwise. And now? ANOTHER 2.5 BILLION IN DEBT is on the "shelf" ready to hit the streets for MORE SHAREHOLDER DILUTION! MASSIVE DILUTION to a stock thats priced at $2.35!!! THE END IS VERY NEAR. THE DEBT WILL EXCEED THE MARKET CAP BY 2X! THE LIABILITIES ARE NOW 9.6 BILLION! NORTEL IS THE MOST BANKRUPT STOCK IN THE MARKET! A 5 YEAR OLD CAN SEE IT.
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