Nortel Update May Include Layoffs
Granted, the update likely won't yield much new information -- the company has already said it is having trouble meeting its gross margin targets and keeping its operating costs below 40 percent of overall revenues (see Nortel: Material Margin Madness).
But tomorrow could be the day that thousands get the axe as the company tries to readjust its business. Per employee, Nortel's SG&A (selling, general, and administrative) expenses are "anywhere between 53 percent to 70 percent higher than its competitors," writes Scotia Capital analyst Gus Papageorgiou, in a note to clients this afternoon. The competitors Papageorgiou cites include Lucent Technologies Inc. (NYSE: LU) and LM Ericsson (Nasdaq: ERICY).
Nortel has already hinted at a headcount reduction, but Papageorgiou is one of the few that have ventured to put a number to the damage. He writes that staff reductions of approximately 5,000 -- with a $125,000 cost per head -- would take Nortel's SG&A expenses down by $617 million, making them only 14 percent of revenues, a figure closer to Lucent's and Ericsson's figures.
The analyst predicts most of the cuts will be in the U.S., where the labor costs more and labor laws are more conducive to mass layoffs.
If no word of restructuring comes tomorrow, at least investors can look forward to financials on the horizon, according to Mark Sue of RBC Capital Markets. "We believe the larger event for Nortel may come on August 16 or 17, when it provides limited unaudited financials for the first and second quarters of 2004."
Sue predicts Nortel will earn two cents a share on revenues of $2.5 billion for the first quarter and two cents a share on revenues of $2.55 billion in the second quarter.
— Phil Harvey, News Editor, Light Reading