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Optical/IP

Nortel Update May Include Layoffs

Nortel Networks Ltd.'s (NYSE/Toronto: NT) status update tomorrow could reveal staff cuts that number as many as 5,000, an analyst following the company says.

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

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jggveth 12/5/2012 | 1:22:58 AM
re: Nortel Update May Include Layoffs
good work analysts
ironman 12/5/2012 | 1:22:57 AM
re: Nortel Update May Include Layoffs It wouldn't make sense to leave out the Great White North if layoffs are true. Yes it's difficult, but not impossible to have massive layoffs in Canada. I don't believe labour laws are as restrictive to managerial or clerical resources in as such to blue collar (which I don't think Nortel is) where it's discussed several month's before the layoff.

Either country it's a sad day; and deplorable how the upper management has shelled itself (Nortel in whole).

IM
dodo 12/5/2012 | 1:22:57 AM
re: Nortel Update May Include Layoffs " there could be a meger of Optical and Wireline"

Wonder who is going to win : Sue or Brian ?

Or is it to be the early 90's redux(sic) when we had the carrier(switching and transmission- fiberworld) networks division?

"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."

Would be interesting to see what really transpires?

EOM

coalde 12/5/2012 | 1:22:56 AM
re: Nortel Update May Include Layoffs "It wouldn't make sense to leave out the Great White North if layoffs are true. Yes it's difficult, but not impossible to have massive layoffs in Canada. I don't believe labour laws are as restrictive to managerial or clerical resources in as such to blue collar (which I don't think Nortel is) where it's discussed several month's before the layoff. "

I am not sure what labour laws they are talking about?!?
I think they must be referring to Europe or something. I work about 20 minutes from the Nortel HQ in Brampton and I can assure you outside of privately negotiated contracts with unions, you can lay as many people off as you want in Ontario. I believe the only law is that you must give two weeks notice.
Physical_Layer 12/5/2012 | 1:22:54 AM
re: Nortel Update May Include Layoffs I think there are few restrictions about layoffs in Ontario, but there are some. For example I remember when JDS was laying off all of the Ottawa folks, there was a requirement that they pay minimum x weeks of severance if they were laying off more than a certain percentage of the workers in that geographic region.

Of course JDS had no problem with paying that fee, and in the case of Nortel most of the people who are layed off probably have a number of years service (and NT has been pretty fair with severence) ... so it's not much of an issue from a legal perspective. At least I don't think so.
PO 12/5/2012 | 1:22:52 AM
re: Nortel Update May Include Layoffs Is the problem really with too low per-employee productivity (too many people), or too high a loaded labour rate (cost per employee), relative to the industry?
dodo 12/5/2012 | 1:22:51 AM
re: Nortel Update May Include Layoffs there is no issue about laying off employees with the exception of unionized personnel up in the great white north.

They have to give 2 weeks' notice but Nortel so far has been giving 2 months whereby you are still covered for insurance and have ability to come and go (exception: some tight ar$$es like DM-the GQ from WWP who decided to cut the tether on the same day the employee was notified).

If optical is supposed to disappear (merge with wireline) I would like to see the song and dance that some optical lifers (DM who did not know access back in 2000 will be one of them) will do to get into wireless ( a la VH)

I believe that employees from North America will suffer and this is a sad sad possibility.
Bale 12/5/2012 | 1:22:51 AM
re: Nortel Update May Include Layoffs How does Nortel rationalize maintaining employee salaries at bubble-era highs?
topher 12/5/2012 | 1:22:51 AM
re: Nortel Update May Include Layoffs 5000 people is the right number. 2500 leave via the flextronics deal and 2500 more in NA
edgecore 12/5/2012 | 1:22:50 AM
re: Nortel Update May Include Layoffs Big Bad Bill Owens has to make sure that after August 19th that he sees NT stock go up?

Hi strategy will be to put all bad/depressing news out in the open and make all the cuts required to ensure the street feels they are turning a corner

Time to buy!

EC
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