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Nortel Slashes Jobs

Nortel Networks Ltd. said this morning that it plans to cut 2,900 jobs in the next two years as it aims to become a leaner company that focuses on high-growth markets such as next-generation CDMA wireless equipment and cuts back on older GSM cellular technology.

The Canadian networking vendor says it will cut 70 percent of the positions this year and the rest in 2008. The company also plans to move around 1,000 positions to "lower-cost" locations, Toronto-based Nortel said in a statement. The cuts, which represent around 8.5 percent of the workforce, could reduce expenses by as much as $400 million a year, the company said in a statement.

Nortel is the second major wireless company planning job cuts this year. Motorola Inc. (NYSE: MOT) said in January it plans to reduce its headcount by 3,500 after a disappointing performance for its handset division in the fourth quarter of 2006. (See Motorola Profit Falls 48%.)

The firm will also reduce the amount of property it holds around the world. The cost of these actions could be as high as $390 million, with about $300 million related to staff reductions and the rest to real estate transactions.

"We are transforming Nortel, and are focused on building a highly competitive organization that drives innovation and profitable growth," says CEO Mike Zafirovski, in a statement. The move comes after the surprise resignation of the Nortel's CFO, Peter Currie, earlier this week. (See Nortel CFO Leaves (Again).)

The point of the restructuring is to reduce expenses and allow investment in "high-growth opportunities." The company plans to maintain R&D investment at 15 percent of total revenues, Zafirovski says.

The firm's preliminary fourth quarter results indicate that next-generation wireless networks will provide some of these growth opportunities. Nortel's revenue for the three months ended December 31, 2006 are expected to be approximately $3.26 billion, up 8.8 percent from the same period in 2005. Gross margin in the quarter is expected to be slightly above 40 percent of revenue, with a strong contribution from the LG joint-venture for new cellular technologies and from CDMA, up from 39.4 percent in the fourth quarter of 2005.

Formed in November 2005, LG-Ericsson Co. Ltd. builds gear for advanced networking technologies like high-speed downlink packet access (HSDPA), which ramps up the speed of GSM-based 3G networks, as well as WiMax wireless broadband equipment. The combined company has also recently signed up IPTV partners.(See Nortel, LG Seal Deal.)

Even in these emerging markets, however, Nortel faces tough competition. Company execs told Unstrung late in 2006 that it was "quietly confident" that Nortel would be among the second wave of suppliers for Sprint Corp. (NYSE: S)'s forthcoming U.S. mobile WiMax network. Instead, Nortel was passed over in favor of Nokia Corp. (NYSE: NOK) -- though Sprint said it will try to "leverage" its existing CDMA suppliers, which include Nortel, for the network as well. (See Nortel Takes WiMax MIMO and Sprint Picks Nokia for WiMax.)

Nortel's shares are trading up 4 percent this morning on the NYSE following news of the restructuring.

— Dan Jones, Site Editor, Unstrung

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