Job cuts continue at Nortel

After suffering a US$957 million loss last year, Nortel Networks Corp. plans to cut 2,100 more jobs and shift 1,000 more to higher growth, lower-cost countries.

The company said Wednesday it lost $844 million (all figures in U.S. dollars) alone in the fourth quarter after chalking up a modest $27 million profit in the third quarter. However, that quarterly loss was in part due to tax write offs and in part to lower than expected spending by telecommunications carriers. Otherwise, revenues would have been up two per cent compared to the third quarter.

Overall, the Toronto-based company’s 2007 revenues totalled $10.95 billion, compared to $11.42 billion for 2006.

Considering the troubled U.S. economy, CEO Mike Zafirovski predicted growth this year will be in the “low single digits,” but he tried to put a good face on the figures noting that both gross and operating margins are up.

“Yes there’s a slowdown in the economy,” he said in a conference call with financial analysts, “but the movement to true mobile broadband is happening right in front of us.”

One analyst suggested that given its financial troubles and that the bulk of its carrier revenues comes from the sale of CDMA cellular equipment – while most of the world uses the GSM standard – perhaps Nortel should concentrate on its enterprise metro Ethernet and optical router and switch businesses rather than risky 4G wireless and WiMAX technologies of the future.

However, Zafirovski defended his strategy, arguing carrier and enterprise markets are complimentary. The network expectations of Wal-Mart, FedEx and Shell aren’t much different from a Tier 2 carrier, he said. Part of the reason the enterprise and optical units weren’t profitable last year was because Nortel invested money in marketing, research and product development, Zafirovski said, efforts which he believes will bear fruit this year.

Iain Grant, telecommunications consultant with the SeaBoard Group, said in an interview it wouldn’t make sense for Nortel to get out of leading-edge wireless technologies. “In the future wireless will be everything. You can’t afford to cut that leg off.”

On the other hand, he was struck by news of another round of layoffs, which come on top of the cuts announced last year. “One large amputation is far better than death of a thousand cuts,” he said.

Overall, though, the modest state of Nortel’s financials shows that Zafirovski “has to strike a couple of home runs,” he said. Whether it’s the long-rumoured deal with Motorola over its wireless infrastructure division or a partnership with networking companies in India or China, “they need something to put a spring back into their step.”

Gartner analyst Akshay Sharma said the year-end figures “look a little bleaker that we had thought it would be. Enterprise (sales) were a little lower than we had expected and they also mentioned some softness on the carrier side.

He also noted that once again Nortel’s financial figures state that quarterly comparisons shouldn’t include its former UMTS broadband GSM wireless infrastructure line, which it sold to Alcatel-Lucent at the end of 2006.

“It seems like they maybe they’re regretting having divested it now,” Sharma said.

While Nortel has had some success selling CDMA-EVDO upgrades, UMTS is the next generation of GSM, he noted, adding that there are a lot of UMTS deployments around the world. “It seems they gave up too soon on that technology.”

Nortel is in trials with U.S. carrier Verizon for its fourth generation wireless broadband LTE technology, but trials don’t bring in revenue, he said.

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“I’m still cautiously optimistic” on Nortel’s future, he concluded, pointing out that it seems to have put restatements of its financials behind and that the company has always been a technology leader.

According to the Nortel financial statement, annual revenue in three of its four divisions was down over 2006. Carrier Networks division revenue was hardest hit in the fourth quarter, dropping nine per cent compared with the year-ago quarter. Over the year, the division pulled in $4.49 billion compared to $5.15 billion in 2006.

Revenue for the Enterprise Solutions unit in the fourth quarter was $762 million, a decrease of three per cent compared with the year-ago quarter. However, over the year revenue was $2.62 billion compared to $2.29 billion in 2006.

Global Services ended the year on a high note with revenue of $605 million in the fourth quarter of 2007 an increase of 12 per cent compared with the year-ago quarter. But over the course of the year it pulled in $2,087 billion compared with $2,132 billion in 2006. Revenue from the sale of Metro Ethernet Networks (MEN) equipment was $1.525 billion, down from $1,591 billion in 2006. Nortel said.

Among the year’s highlights, Nortel said its Innovative Communications Alliance with Microsoft Corp. logged over 600 wins.

It touted Verizon’s decision to trial LTE (Long-Term-Evolution) technology, and its demonstration of what it said was the industry’s first WiMAX VoIP Call over a 2G/3G voice network.

Nortel also said its PBT (Provider Backbone Transport) technology delivered over 30 customer wins following the landmark equipment sale to BT early in 2007. It said the Metro Ethernet Networks team had wins including Swiss power company groupe-e, which chose Nortel to help deliver high-bandwidth Ethernet connectivity to support services such as VoIP, high-speed Internet access and data center consoli

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