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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

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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
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
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
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
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

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:-(
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:-(
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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
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......
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