More Dark Days For Nortel
By The Canadian Press
TORONTO (Bederwanaag) November 10, 2008: Nortel Networks Corp. (TSX: NT.TO) is cutting 1,300 more jobs and freezing salaries after a multibillion-dollar quarterly loss amid "worsening economic conditions." The Toronto-headquartered international telecommunications equipment maker, reporting in U.S. dollars, said Monday it had a third-quarter net loss of $3.41 billion. Sales declined 14 per cent to $2.32 billion, and the net loss was swollen by a $1.14-billion writeoff of goodwill - the amount paid for previous acquisitions above their tangible value - as well as a $2.13-billion income tax hit.
In releasing the results, Nortel also said it is suspending dividend payments on two series of preferred shares. The cost-cutting plan includes measures to "eliminate or consolidate executive and management positions company-wide." The 1,300 job cuts are to be made "incrementally" - 25 per cent by the end of this year and the rest through 2009 - and an existing hiring freeze will be extended.
"We have seen worsening economic conditions, together with extreme volatility in the financial, foreign exchange and credit markets globally, further impacting the industry, Nortel and its customers," CEO Mike Zafirovski stated. "We are therefore taking further decisive actions in an environment of decreased visibility and customer spending levels."
Zafirovski described the non-cash charges to goodwill and the deferred tax asset as "prudent and appropriate actions in re-evaluating key assumptions and projections." He added that if Nortel makes money in the future, "the benefit of the tax asset remains available."' The third-quarter net loss was worth $6.85 per share, compared with net income of $27 million or five cents per share in the year-ago period, when revenue was $2.71 billion.
The 14 per year year-over-year revenue decline "resulted from a challenging economic environment, competitive pressures and reduced spending by key carrier customers," the company said. The latest expense-reduction moves, "together with ongoing restructuring and other cost reduction measures are expected to reduce annual gross costs by approximately $400 million in 2009." Effective Jan. 1, Nortel "will decentralize several corporate functions and transition to a vertically integrated business unit," in part to reduce duplication. Coinciding with this will come the departures of chief marketing officer Lauren Flaherty, chief technology officer John Roese, global services president Dietmar Wendt and executive vice-president of global sales Bill Nelson.
The company said there is "no update at this time" on its effort to sell its metro ethernet networking division. Nortel said it held $2.3 billion in cash at Sept. 30, after negative operating cash flow of $144 million during the quarter. The company "continues to experience significant pressure on its business and the deterioration of its cash and liquidity as customers across all businesses, in particular in North America, respond to expanding macroeconomic and industry conditions and uncertainty by delaying or reducing their capital expenditures."
In suspending dividends on Nortel Networks Ltd. Series 5 cumulative and Series 7 non-cumulative preferred shares, the company stated that "while NNL is in a position to pay such dividends, its board of directors has determined that in this uncertain economic environment it would be prudent to maintain liquidity and preserve cash."