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Nortel Sells Plants, Supplies Update

Nortel Networks Ltd. (NYSE/Toronto: NT) hit the street running today, announcing the proposed sale of its remaining manufacturing operations to Flextronics Corp. (Nasdaq: FLEX) and saying that its updated financial refiling should be available in July (see Nortel Sells Plants to Flextronics and Nortel Provides Financial Update).

The agreement with Flextronics, which will net Nortel between $675 million and $725 million in cash, was widely expected since the beginning of the year (see Nortel Talks Outsourcing).

The deal with the contract manufacturer means Nortel won't be making any of its own products any more, a move it expects will save it up to $100 million a year after four years. Nortel's four-year manufacturing deal with Flextronics is worth $2.5 billion a year, and it will also enter a three-year product design services deal. About 2,500 Nortel employees are set to be transferred to the new owner.

The deal will include product integration, testing, and repair operations in Canada and Brazil, while Flextronics has also offered to buy Nortel's plants in France and Northern Ireland. The deal also includes some hardware and embedded software design assets in Canada and Northern Ireland, as well as Nortel's global repair services business.

Nortel will receive cash payments starting in the fourth quarter of 2004, subject to approval of the sale. The Canadian firm expects to incur sale costs of $200 million but to see a positive impact of $75 million to $100 million a year on net earnings after four years.

Meanwhile, Nortel investors are anxious for the company to get through its messy financial refiling, which has depressed its share price and resulted in board-level job losses (see Dunn's Done With Nortel , Nortel Gets Federal Subpoena, and Nortel Rattles Nerves).

Now the company is hinting that it sees the light at the end of the tunnel. While its previous updates have been non-committal (see Nortel Leaves All Doors Open), today's update on the refiling process and its impact on 2004 financial reporting provides a timetable of sorts. The highlights are:

  • Nortel expects to provide "updated assessments of the expected impacts of the restatements" on its financial statements from 2003, 2002, 2001, and the first quarter of 2004, in mid to late July. So, in about three to five weeks' time.
  • Preliminary unaudited results for the first and second quarters of 2004 are due to be released by mid August.
  • During the third quarter of 2004, Nortel expects to file financial statements for 2003 and the first two quarters of 2004, and then file any remaining amendments to any prior periods after that "as soon as practicable." This means Nortel will miss the August 2004 deadline for filing its report on the second quarter of 2004, so it will file a late filing report for that quarter with the Securities and Exchange Commission (SEC).

Nortel's share price today is up 6 cents, just over 1 percent, to $4.80, while Flextronics is up 43 cents, nearly three percent, to $15.80.

— Ray Le Maistre, International Editor, Boardwatch

inauniversefarfaraway 12/5/2012 | 1:28:50 AM
re: Nortel Sells Plants, Supplies Update > The typical upper managerment attitude is "I
> can't bothered by these trivial human resources
> issues, I need to focus on the bottom line".
> Upper managers expect middle and lower managers
> to deal with this "trivial stuff"

This is double talk, on the one hand you state that this is the fundamental reason between the two site's differences and now you trivialise those differences. This is what is called hypocrisy.

> The difference between the Ottawa and BAN is:
> "Ottawa managers listen to and protect those
> below them, whereas the BAN guys listen and
> please those above them". I would rather work
> for the Ottawa guys myself.

This is B.S. as well. Management allegiance based on geography, or culture? This is moronic. Or are you saying that BAN managers only kiss ass of their superiors, but not the Ottawa guys, they are defenders of the little guy? This would be revolutionary. Why not just say something like: colored people kiss ass, while white people stand up for themselves.

Ottawa sounds like a better place because of favoritism, nothing more, nothing less.

Whatever allows you to sleep at night Mach. I'm sure Hitler also though Germans defended their subordinates, while Jews threw their own at the wolves to save their own skin.

How quickly we forget the lessons of history.

Far'y
Machavelli 12/5/2012 | 1:28:51 AM
re: Nortel Sells Plants, Supplies Update > From your post, Nortel seems to have more
> problems than simple corruption at the top.

Probably no different than any other company.

> Long standing animosity that upper management
> has never addressed? This is freaky!

The typical upper managerment attitude is "I can't bothered by these trivial human resources issues, I need to focus on the bottom line". Upper managers expect middle and lower managers to deal with this "trivial stuff"

> Either you're saying that management at BAN is > incompetent, which can only be the fault of
> higher-ups, unless you are also saying that
> decisions don't emanate from the top. The
> alternative is that Nortel would threaten BAN > managers to get them to be more... compliant.

The difference between the Ottawa and BAN is: "Ottawa managers listen to and protect those below them, whereas the BAN guys listen and please those above them". I would rather work for the Ottawa guys myself.

> You allude to team dynamics, and cultural
> differences... Do you actually believe that
> this is anything more than discrimination
> cloaked in the thin patina of hypocrisy?

I don't know if you are elude to racial discrimination. The Ottawa guys tend to be predominately English, whereas the BAN guys tend to be predominately French. I personally don't think there is any disrimination along those lines. But I believe there was discrimination with layoffs with respect to a person's age. Young people are cheaper to have in a company than older people (despite the fact that older people' wisdom is worth the extra price)

" ....when they were described by another poster as working feverish hours to get the job done."

Layoffs at Nortel are usually done along political lines (who you know), not how dedicated or efficent you are (unfortunately)

Mach
inauniversefarfaraway 12/5/2012 | 1:28:53 AM
re: Nortel Sells Plants, Supplies Update Dear Mach,

From your post, Nortel seems to have more problems
than simple corruption at the top.

> In regards to BAN vs Ottawa, there has always
>been anomosity between the two regions as well as
>cultural differences in regards to team dynamics.

Long standing animosity that upper management has never addressed? This is freaky!

>The Ottawa guys suffered fewer layoffs because
>their management fought hard to prevent them,
>whereas the BAN management threw their guys to
>the wolves willingly in order to save their own
>jobs.

Either you're saying that management at BAN is incompetent, which can only be the fault of higher-ups, unless you are also saying that decisions don't emanate from the top. The alternative is that Nortel would threaten BAN managers to get them to be more... compliant.

It must be nice to live in the Ottawa bubble where
management is never threatened...

>BAN guys will be out in the street.

You allude to team dynamics, and cultural differences... Do you actually believe that this is anything more than discrimination cloaked in the thin patina of hypocrisy? Your post seems to lay responsibility for the layoffs strictly at the feet of BAN management, when they were described by another poster as working feverish hours to get the job done. Layoffs are usually decided at the top, is this not the case at Nortel? You mean they layoff because they look down their noses at BAN?

Doesn't read like Nortel has much of a future. Rife within the ranks because of "cultural" differences, throwing out divisions because of these cultural differences.

When technology decisions are made within Nortel, do they also look for these "cultural" differences? Is that how the viability of innovations is decided?

Good luck to these folks, they'll need it to figure out which way is up.

Far'y
Machavelli 12/5/2012 | 1:29:06 AM
re: Nortel Sells Plants, Supplies Update Milano,

I agree with you, I think Jean Monty was one of (if not the) best CEO's Nortel ever had. I met him once and he is one of the few Nortel guys that had a comprehensive vision for the company that extended well beyond 10 years. This differs from your typical CEO whose vision lapses after their stock options are vested.

Dodo,

In regards to PM, I believe his influence on Bill Owens (who has the final decision on plant and regional facility closings)is minimal. I doubt a seasoned military guy is going to take suggestions from a "Doogie Howser" look-alike for major company decisions. I found PM to be in the same class as B McF and GM in terms of lack of intellegence and leadership charisma.

Mach
somedumbPM 12/5/2012 | 1:29:19 AM
re: Nortel Sells Plants, Supplies Update I'll second that...hard working folks in BAN, the systems house and the SIF. You will be missed!!! A raw deal for all your hard work. The last word in billing for the quarter, especially the fourth; was getting that gear out the door. How many Christmas weeks did those folks work while the rest of us enjoyed the shutdown. You all deserve better.
------------------------------------------------
I agree there. I spent a few weekends and xmas holidays interfacing with the guys up there to make sure equipment for my projects got out the door as well.

There was a very talented group of sys engs up there as well, but most of the group was dissolved sometime back. A few ended up in the SIF, intelectually underuntilized, wanting for the turn around - but now......
litemyfiber 12/5/2012 | 1:29:20 AM
re: Nortel Sells Plants, Supplies Update Ottawa absorbing BAN functions !!! these guys normally go home at 4PM. Only in Montreal we were stupid enough to work till 11 pm and have B-forms sessions scheduled on Saturdays:-(
------------------------
I'll second that...hard working folks in BAN, the systems house and the SIF. You will be missed!!! A raw deal for all your hard work. The last word in billing for the quarter, especially the fourth; was getting that gear out the door. How many Christmas weeks did those folks work while the rest of us enjoyed the shutdown. You all deserve better.

Alas, corporate life sucks
dodo 12/5/2012 | 1:29:27 AM
re: Nortel Sells Plants, Supplies Update Milano & Mach

Will PM go along with it? I know that BMcF does not have a long stay - he may retire pretty soon (what with 25+ years and as long as GM is the CTO)

PM has a lot of his buddies (from his days as engineer in the test and verification) who have survived under his mgmt.I don't want to name them but you must know the boys and girls.

Ottawa absorbing BAN functions !!! these guys normally go home at 4PM. Only in Montreal we were stupid enough to work till 11 pm and have B-forms sessions scheduled on Saturdays:-(
Milano 12/5/2012 | 1:29:29 AM
re: Nortel Sells Plants, Supplies Update Montreal is on a downward spiral leading to just a regional representation for sales. Given that a lot of Bell's product intro decisions are made in Ontario, you really need a light team in the Belle Province.

For sure Ottawa would love to absorb the PLM function, and forget about bringing too many BAN people for it. They have the qualified staff who are already part of the WASP club - a bonus.

One thing we tend to forget is that Monty really helped Nortel's presence in Quebec by increasing its activities plus outsourcing to companies based in the province - eg. CMAC. Now the new leadership is only too happy to part with that. The reality in Canada is unless you fight for it, Ontario gets it all.

...M

Machavelli 12/5/2012 | 1:29:30 AM
re: Nortel Sells Plants, Supplies Update Dodo,

The transfering of 2500 employees to Flextronics translates to $500,000,000 that Nortel does not have to pay in severance packages. This is not mentioned anywhere by Nortel for obvious reasons.

In regards to BAN vs Ottawa, there has always been anomosity between the two regions as well as cultural differences in regards to team dynamics. The Ottawa guys suffered fewer layoffs because their management fought hard to prevent them, whereas the BAN management threw their guys to the wolves willingly in order to save their own jobs.

I suspect there will not be any BAN to Ottawa transfers, but instead the Ottawa guys (who have more clout within Nortel) will just assume the marketing and PLM roles and the BAN guys will be out in the street.

Mach
Dr,Q 12/5/2012 | 1:29:31 AM
re: Nortel Sells Plants, Supplies Update About the time that I was being thrown overboard by Lucent (along with several thousand others) they we considering selling the Merrimack Valley works to a CEM. Any Lucent insiders (current or former) who can comment on that?

. . . Dr.Q
dodo 12/5/2012 | 1:29:33 AM
re: Nortel Sells Plants, Supplies Update Mach

This is a given. Remember when they sold the IS group, most of them got axed when the business went south or they had to agree to a pay reduction.

But I was referring to the marketing and PLM groups of Optical. I mean those who are on the 3rd and 4th floor at BAN1.Either you move to Ottawa or else ..........
Machavelli 12/5/2012 | 1:29:33 AM
re: Nortel Sells Plants, Supplies Update Dodo,

Part of Nortel's undisclosed strategy is that by outsourcing manufacturing (and manufacturing employees) to Flextronics, Nortel offloads its severance package obligations as well. So if Flextronics fires the former Nortel employees sometime in the future, severance packages paid by Flextronics are minimal or non-existant.

Mach
dodo 12/5/2012 | 1:29:35 AM
re: Nortel Sells Plants, Supplies Update With only Optical as the major business @ BAN , does this mean that there would be a lot of "For Sale"on the west island because of transfers to Ottawa. what a change from Beaconsfield to Kanata!

I believe that the S&M teams will be large here because of the Bell Quebec factor even though it is a blip on the radar

Milano 12/5/2012 | 1:29:35 AM
re: Nortel Sells Plants, Supplies Update Because of the weakness of the Canadian market, there is little need to leave much presence in Montreal except a skeleton sales team. Bell Quebec is barely a blip on Nortel's sales figures, a large team here has more to do with history now.

Production and all related functions will melt down, access is gone, product management can be made from Ottawa.

The end of an era for what used to be one of Montreal's biggest employers!!

...M
Machavelli 12/5/2012 | 1:29:39 AM
re: Nortel Sells Plants, Supplies Update Dodo,

Reality is, there will more Nortel ghost towns.

With the current imploded and contracted telecom market, I would bet all Montreal operations will be shutdown soon and the Ottawa region will contain the only Canadian Nortel operations.

Outsourcing manufacturing is a good move. It only took them 10 years to figure how successful outsourcing was for Cisco. But the problem still is there is no significant business out there.

Nortel is trumpeting every minor sale they get and this is not good according to the Mootley Fool site

"When a company starts trumpeting every single sale, or previewing good news before it is actually 'news,' look out !!!

http://www.fool.com/News/mft/2...

I believe more tough times are ahead, even Bill Owens has stated he has not ruled out further layoffs.

Mach
dodo 12/5/2012 | 1:29:40 AM
re: Nortel Sells Plants, Supplies Update Milano

I was wondering about the Global operations group.

As far as the chap is concerned, I believe that when he gets the golden handshake, he will be laughing all the way to the bank. He is pretty comfortable in his west island house and lately he has managed to get himself on some board of directors in Montreal.

unless he is hired by one of the manufacturing companies

Looks like BAN will be a ghost campus pretty soon albeit that some tenants may take over some more floors.
Milano 12/5/2012 | 1:29:46 AM
re: Nortel Sells Plants, Supplies Update Charam Bolouri used to be the king of Nortel's manufacturing, so what's in store for him now?

His know-how and interest used to be in pushing the goods to the shipping dock. Looks like Nortel wants to get out of that business...

...M
stephenpcooke 12/5/2012 | 1:29:48 AM
re: Nortel Sells Plants, Supplies Update I was personally involved with Nortel's first manufacturing divestiture in 1999. At that time they divested parts of factories, but mainly product lines. Interestingly enough the company that I worked for at that time, Chatham Technologies (a metal-bender that made cell base station cabinets) was acquired by Flex a few years ago.

It has already been mentioned that conservative is the way to go in this market and, to a certain extent this is correct. You will always make more money if you own the plant that is running 2 or more shifts 5 days a week. The difficulty in this market is that keeping this run rate is not nearly guaranteed. What Nortel has achieved is that it has acquired some level of independence between its sales and manufacturing/inventory systems. Yes, their day-to-day costs will go down but so will their margins when they make a sale due to Flex making their investment back on the equipment manufactured.

Flex will get a few world-class manufacturing plants, I have been in all of them other than Brazil, that have significant capacity available to be sold to the next highest bidder. This will make a lot of sense to an equipment provider who is burdened with a quota for in-country content (as in the case of Brazil).

A side 'benefit' to this is that the timing of revenue recognition will be much more clear cut in that it will be much harder to ship empty boxes at the end of Q4 to meet the numbers.
turing 12/5/2012 | 1:29:48 AM
re: Nortel Sells Plants, Supplies Update You don't seriously think CSCO wants to buy NT do you? [and no, the contract manufacturer would have no bearing on an acquisition of that size]

Partnering is one thing, but a buyout gives real heart-burn, especially such different corporate cultures as CSCO and NT. It would be cheaper to take LU, but it would still be a huge cultural divide. (like NT buying Bay Networks)
No-tell 12/5/2012 | 1:29:50 AM
re: Nortel Sells Plants, Supplies Update Good move for Nortel. Of all the big CEM's, Flextronics was the only one to which Nortel hadn't previously outsourced large portions of manufacturing; Nortel did deals with Sanmina/SCI and Solectron going as far back as 1998/1999 or so. Nortel has continued its conservative tradition by spreading the wealth to yet another manufacturer, thus trying to prevent any one manufacturer from controlling too much.

Also, of the big CEMs, Flextronics has the largest presence in China...this should be good for Nortel as (if, when, is more appropriate, I guess)China and Asia in general become more important for both (a) manufacturing cost reduction and (b) end consumers.

materialgirl 12/5/2012 | 1:29:51 AM
re: Nortel Sells Plants, Supplies Update Does this move make NT more or less attractive to CSCO? Who makes CSCO's stuff?
fbgboy 12/5/2012 | 1:29:53 AM
re: Nortel Sells Plants, Supplies Update Flex is the ultimate american outsource machine. If there is orders they go 24/7. No orders you are all let go the next day. I guess Nort had to dance with the devil that will pay them today.
Not sure if this is good or bad news. May or may not be trendsetting. Less profit. less risk. Being conservative is the post bubble way.
firstmile 12/5/2012 | 1:29:54 AM
re: Nortel Sells Plants, Supplies Update Will this be enough bail money for Frank and friends?
...first
pengandy 12/5/2012 | 1:29:57 AM
re: Nortel Sells Plants, Supplies Update Flex get a good plant which is burden to Nortel
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