Nortel Cuts 3,500 Jobs

Nortel Networks Ltd. (NYSE/Toronto: NT) is to cut its workforce by about 3,500, 10 percent of its staff, by the end of the year in an effort to cut costs.

Those losses are lower than the 5,000 that some industry watchers had predicted, but come in addition to the transfer of 2,500 staff to outsourcing manufacturer Flextronics Corp. (Nasdaq: FLEX) announced earlier this year (see Nortel Sells Plants, Supplies Update).

Combined, these two moves will take Nortel's headcount down from the current 36,000 to about 30,000, less than a third of the 97,000 employees it had in 2000.

Nortel estimates these latest job cuts will cost the company between $300 million and $400 million, but save it between $450 million and $500 million a year.

In a conference call today, CEO Bill Owens tried to soften the blow for those facing the sack by saying the staff are "truly the great treasure of Nortel," and that the redundancies would be handled as "compassionately and effectively" as possible. That'll no doubt be a great comfort to the 3,500 that will clear their desks within the next four months.

The CEO added that the losses would affect North America the most, and that there would be an emphasis on management positions. Without being any more specific, Owens also stated that the wireless and enterprise businesses would be the least affected, and that R&D in "legacy systems" and "long-distance optical systems" would be reduced.

He also said that as a result of the ongoing internal review into the company's books, a further seven executives had been sacked in addition to the three already given their marching orders (see Nortel Fires CEO). He also reiterated that Nortel would be looking for all 10 sacked executives to repay their bonuses, which in total amount to about $10 million (see Nortel Wants Its Bonuses Back).

But that wasn't the end of the jobs news. Owens the said Nortel plans to hire several dozen new sales and marketing staff to "enhance the company's customer-facing focus," and that a Chief Marketing Officer would be appointed. "We have great products and need to do a better job at marketing them. That's been something of a weakness for us," said the CEO.

The announcements came as part of the vendor's latest business update, which includes unaudited financial estimates for the first two quarters of this year (see Nortel Provides Q1, Q2 Estimates).

Those estimates put revenues at $5.1 billion for the first half of the year, with $2.5 billion in the first quarter and $2.6 billion in the second quarter (see table below). About half (51 percent) of those revenues were generated by the wireless networks unit.

Table 1: How Nortel's Revenue Estimates Compare With 2003
Q2 2004 est. Q1 2004 est. Q2 2003* Q1 2003*
Revenues $2.6 billion $2.5 billion $2.34 billion $2.4 billion
EPS $0.00 to $0.01 $0.00 to $0.01 $0.00 $0.01
* Subject to restatement

Net income was 0 to 1 cents per share for each of the two quarters, lower than the 2 cents per share in each quarter that analysts had been expecting, according to a survey by Thomson First Call.

Gross margins for the six months are estimated at $2.2 billion, or 43 percent of revenues. Together, selling, general, and administrative expenses (SG&A) and R&D expenses are estimated to be about $2.1 billion for the first half of the year.

Neither Owens or CFO Bill Kerr were prepared to comment on the current third quarter or the current lawsuits facing the company.

The CEO said further details of the job cuts would be released in the coming weeks, and also that Nortel expects to complete its independent review and its financial restatements by the end of September.

The news sent Nortel's share price up by 29 cents, about 8 percent, to $3.89, a welcome movement following the decline of the past five months (see chart below), during which bad news has been heaped on more bad news for the vendor (see chart below (see Problems Mount-y Up for Nortel, Nortel Tries On a New Suit, Nortel: Material Margin Madness, and Nortel Rattles Nerves for just a taste).

And initial analyst reaction seemed favorable. Steve Levy at Lehman Brothers had been concerned that Nortel might not be clear enough about how it would tackle its cost base, but today commended Nortel's management on its "decisive restructuring move."

Now Owens is talking up the future for the company, though without getting into many specifics. He says that under the new management, and with new internal systems in place, the company aims to be "the most credible and honest company in the marketplace." Best of luck there.

As part of the move to streamline the firm, get gross margins into the 40 percent to 44 percent range in 2005, and reduce operational expenditures to below 35 percent next year (and below 30 percent in the future) from the current 42 percent to 44 percent, Nortel is being reorganized into two units -- carrier networks, and enterprise networks -- from the current four (wireless, wireline, optical, and enterprise).

This will bring greater benefits to Nortel in terms of costs, and make it simpler for customers, especially carriers, believes the CEO.

He also announced a greater focus on providing services to customers in addition to products, and said his team was currently "trying to understand what our services capability is inside Nortel." He noted that Nortel was already bidding to run telecom systems on behalf of carriers, and that while this was a lower margin business -- typically providing around 20 per cent to 25 per cent gross margins -- it was a great cash generator.

— Ray Le Maistre, International News Editor, Light Reading

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dodo 12/5/2012 | 1:21:22 AM
re: Nortel Cuts 3,500 Jobs The 3,500 job cuts planned at Nortel Networks Corp. (Toronto:NT.TO - News) will largely take place at its North American operations, the company said on Thursday.
North America's biggest telecom equipment supplier, said the job cuts, which amount to 10 percent of its work force, are part of its strategy to cut its principal business units from four to two.

One unit will be a carrier focused organization, while the other will be enterprise focused, William Owens, president and chief executive, told a conference call.

He said Nortel's enterprise business is strong and minimal job cuts are planned there.

dodo 12/5/2012 | 1:21:22 AM
re: Nortel Cuts 3,500 Jobs "Nortel to demand fired execs repay $10 mln bonuses
Thursday August 19, 9:54 am ET

MONTREAL, Aug 19 (Reuters) - Nortel Networks Corp. (Toronto:NT.TO - News) plans to demand repayment of $10 million in bonuses paid to 10 fired executives, the company said on Thursday.
"Ten people who have been relieved for cause, including the three previous executives announced back in April, will have approximately $10 million of bonuses that we will demand repayment from," William Owens, president and chief executive, told a conference call.

On Thursday, Nortel said that seven individuals with significant responsibilities for financial reporting at the company's business and regional levels had been terminated for cause"
dodo 12/5/2012 | 1:21:21 AM
re: Nortel Cuts 3,500 Jobs http://hoovers.com/free/co/sec...

Strategic Plan

The principal components of the strategic plan are:

Renewed Commitment to Best Corporate Practices and Ethical Conduct

GÇó Nortel Networks places the highest emphasis on exemplary corporate and individual conduct by its officers and employees. As a specific action, the position of chief ethics and compliance officer, reporting to both the chairman of the board and the president and chief executive officer, has been created and recruitment is taking place.

Streamlined Organizational Structure to Reflect Alignment with Carrier Converged Networks

GÇó Effective October 1, 2004, the CompanyGÇÖs wireless, wireline and optical businesses will be combined into a single carrier networks organization supported by customer-facing solutions teams. This structure is the evolution of the network transformation to converged networks that is designed to facilitate customer solutions across all types of network access and attached devices. This carrier-focused structure enhances the customer alignment and is expected to eliminate internal redundancies and reduce costs.

GÇó Pascal Debon will assume the role of president, carrier networks. He is currently the CompanyGÇÖs president, wireless networks.

GÇó Sue Spradley will assume the role of president, global operations reporting to the president, carrier networks. In addition, Spradley will report to the president and chief executive officer regarding specific new partnership initiatives. She is currently president, wireline networks.

Carrier13 12/5/2012 | 1:21:21 AM
re: Nortel Cuts 3,500 Jobs The Street.com is reporting:
"The broader layoff, part of a strategic plan to cut up to $500 million
from its annual cost structure, will result in about 3,500 lost jobs,
primarily in the company's North American wireline division. Executives
said its wireless division will be untouched. The company expects the
layoffs to cost $300 million to $400 million."

Machavelli 12/5/2012 | 1:21:20 AM
re: Nortel Cuts 3,500 Jobs Hello Dodo,

I believe it is the top financial guys out of every division. There was a gang of 6 to 10 people put on suspension with pay a few months ago. If you look at old presses (which I can't find at the moment), their names were listed.

Your predication about McFadden taking over Mumford's position has come true.

dodo 12/5/2012 | 1:21:19 AM
re: Nortel Cuts 3,500 Jobs Hi Mach

I realize that they are the financial guys.
BTW : 4 out of the 7 were already on LOA since April 29 but I was just curious about their ID.

As far as McF, he will be there for the next 18 months or so until the musical chair starts again.

So now we have 2 Europeans as head honchos of the BUs- Debon and Collins.

With wireless, wireline and optical consolidating under Debon, it will be interesting to see who manages to survive amongst the VPs, GMs and EVPs -some should watch their backs

Watch for VH and her ilks coming back to Canada {I don't believe that as ex-pat she can stay in France for more than 2 years until she crosses the channelor becomes the new CMO:-(}

Will Corporate HQ move to Ottawa? Owen is looking for Govt and defense contracts.

I am a bit surprised about the following though:

"Chahram Bolouri, who is currently president, global operations, will assume the role of president, Nortel Networks services reporting to the president and chief executive officer, with specific responsibility for analyzing the CompanyGÇÖs services offerings and building a strategy for leveraging this future growth opportunity"

Anyway it would be interesting to see the results in January 2005 and the subsequent reorg in Q'2-2005 (can't get rid of old habits aren't we?)
materialgirl 12/5/2012 | 1:21:18 AM
re: Nortel Cuts 3,500 Jobs In the raging SONET versus Ethernet debate, where does this NT managenebt tean seem to think the future lies, given this re-org? It seems to me to favor Ethernet over SONET. Is it not the SONET guys losing their jobs, while the Ethernet guys retain their jobs?
TriteReading 12/5/2012 | 1:21:18 AM
re: Nortel Cuts 3,500 Jobs When they say "legacy systems" R&D will be affected, I'm thinking that means Passport. Neptune is clearly the future platform and Passport's days are numbered.
Machavelli 12/5/2012 | 1:21:18 AM
re: Nortel Cuts 3,500 Jobs Dodo,

I am actually not surpised about Bolouri surviving. He is a master BS'er and it is only natural that Owen (who needs allies within Nortel) would keep him on as advisor for his master plan.

Owen's behaviour is not surprising either. So far all of his actions have been based on input from Nortel upper management. He is a military guy and will not deviate from typical management norms (consolidate these divisions, fire more people, etc.), but base his actions on input from his immediate subordiants. Notice that ratio of management to employess is continously decreasing proving this point.

materialgirl 12/5/2012 | 1:21:17 AM
re: Nortel Cuts 3,500 Jobs If Passport is dead, what scale of VoIP can NT attempt? Neptune is a little edge device, isn't it? Do they want to use AVCI at the core of their networks?
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