Layoffs, restructuring are Nortel

Telecommunications equipment maker Nortel Networks will lay off another 1,300 employees and restructure its business to face an accelerated “sense of emergency” in worldwide plunge in customer spending, the company announced this morning.

Combined with previous job cuts, the Toronto-based company will have shed 2,500 jobs by the end of next year, on top of thousands laid off in the previous three years due to financial woes.

As a result of the moves today, it hopes to save $260 million in 2009 on salaries alone as well as save cash.

As it released its third quarter results showing a $3.4 billion loss, company CEO Mike Zafirovski said that starting Jan. 1, Nortel’s four divisions will be trimmed to three: Units that will create and sell carrier network products, metro Ethernet network products and enterprise products. The global services division that had existed will be split among the remaining three so each unit will be vertically integrated.

In other words, under the new structure, the three product divisions will have control over everything in their spheres, including sales, research and development. However, in September Nortel said it is looking to sell the Metro Ethernet division.

“There is no update at this time on Nortel’s review of the potential divestiture of the MEN business,” Nortel said in a press release.” However, the division continues to spend on research and development. “I really believe that that with the change in customer markets, focusing on end to end solutions, that business structures combining equipment, software solutions and services is the right structure,” Zafirovski said.

As a result enterprise customers will be serviced by “a highly focused and dedicated business that’s going to have complete product and portfolio development responsibilities, R&D marketing and sales” for voice, data and unified communications products. The division will be headed by Joel Hackney.

The Metro Ethernet division will be headed by Philippe Morin, while carrier will be headed by Richard Lowe. There will a dedicated global services sales unit to support these two service provider customers, to be led by Darryl Edwards.

The restucturing will cost the jobs 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 new structure will provider managers with “a hightened focus” and clear lines of accountability, Zafirovski said. The employment freeze announced earlier in the year will continue “foreseeable future,” at least to the end of 2009. The only exception will be some customer-facing positions, he said.

In a bid to brighten the news, Zafirovski said Nortel continues to win customers, including unified communications sales to the HSBC bank, the New York Mets baseball team, and Bloomberg News. Deloitte chose Nortel as its global telepresence provider. Have 41 wins in optical business including Bell Canada. Carrier progress include continuing trials of the emerging LTE technology and sales to China Telecom.

He also emphasized that Nortel continues to invest in areas it believes will pay off in the future, including 4G wireless, unified communications for enterprises, 40Gigbit technologies, carrier value-added services and multimedia.

However, he expects revenue for all of 2008 will drop four per cent compared to last year.

The bad financial news was not unexpected: Zafirovski had warned in September that it was coming, when he announced a buyer for the Metro Ethernet business is being sought. The third quarter figures showed how bad the second half of year has become. Revenue from sales to carriers dropped 21 per cent in the quarter compared to the second quarter, while Metro Ethernet sales were down 16 per cent and global services sales down five per cent. Sales of enterprise products were basically flat, Zafirovski said.

Meanwhile, competitor Cisco Systems, although acknowledging “challenging” global economy” said last week its first quarter fiscal 2009 (for the period ending Oct. 25) net sales were up eight per cent over the same period a year ago, although net income was up marginally for the same period.

“I understand this is a critical time for Nortel,” Zafirovski told financial analysts in a news conference this morning. “This aggressive, necessary and swift actions are focused in allowing Nortel to manage through this tough environment while at the same time positioning ourselves to move forward.”

Lawrence Surtees, vice-president of communictions research at IDC Canada, said the financial figures have to be taken in context. Nortel will still sell about $9 billion in products and services, he pointed out. The company still has good products, some of which are best in the world, and makes major investments in research and development. It rode out the 2002 dot-com collapse and its own financial irregularities, and will ride out the current economic storm, he predicted.

“It would be more problematic if they didn nothing,” Surtees added.

Telecommunications consultant Eamon Hoey, who advises companies on communications strategy, said Nortel faces some of the challenges every company faces around the world in today’s financially unstable markets. On top of that, he added, its carriers and enterprises are “in dire straits,” Chinese equipment makers are pushing into North America and Europe. The recent Canadian spectrum auction has created a double whammy: More competiton means lower expected revenue for Bell Mobility and Telus Mobility — and therefore potentially less purchases from Norte– while two of the new licence holders who have announced equipment partners so far haven’t chosen Nortel.

Hoey and Surtees said the real concern is how Nortel is viewed by stock markets. “The markets could kill them despite their best efforts,” Hoey said.

After this morning’s results were released Nortel shares were trading at $1.29 a piece, down twenty cents from Friday. Just over a year ago they were trading at $18.96.

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