Nortel cutbacks signal slowdown

Brampton, Ont.’s Nortel Networks Corp. last month announced it would be cutting up to 4,000 jobs, only to say it would be hiring about that many in different sectors.

The company began its layoffs by letting go almost 1,000 employees at its locations in Brampton and Ottawa. Though reports accompanying the announcement suggested the layoffs would take place in “low-priority areas,” a spokesperson for the company could not confirm exactly what sectors the employees worked in.

However, most analysts speculated the layoffs would affect primarily voice-related services.

“I think the cuts are probably a reflection of cuts within segments within their product set that weren’t showing as robust growth as they would like, and that didn’t have the same kind of future as optical networking does,” said Mark Quigley, an analyst with Brockville, Ont.’s The Yankee Group in Canada.

Nortel’s announcement comes at the same time as other telecommunication equipment vendors prepare for a prolonged slowdown in the networking business.

San Jose, Calif.’s cash-strapped 3Com Corp. said it plans to cut up to 3,000 employees in an effort to save US$200 million.

And Murray Hill, N.J.-based Lucent Technologies, the largest maker of phone equipment, said it plans to seek buyers for its factories in Oklahoma City, Okla. and Columbus, Ohio. Combined, both plants have 8,400 employees making traditional phone switches and wireless equipment. Lucent’s decision to outsource some of its manufacturing is part of the plan it announced last April to reduce some of its manufacturing workforce of 30,000. As of press time, Lucent – which saw its shares tumble 81 per cent in 2000 – was also preparing to discuss a plan to cut US$1 billion a year in costs, including job cuts.

As well, wireless giant Motorola said it will be shutting down a cell phone manufacturing plant in Illinois and cutting 2,500 jobs.

Quigley was quick to delineate the Nortel restructuring from the layoffs announced by 3Com, Lucent and Motorola.

“There are some who are under tremendous pressure who are making these cuts because it affects their bottom line directly,” Quigley said. “And there are others such as Nortel, who have continued to meet numbers quarter over quarter and continue to show strong growth, who are doing this perhaps from a more strategic point of view.”

Quigley said San Jose, Calif.’s Cisco Systems was also entering a version of a hiring freeze, whereby it would not increase its employee numbers, though it may shuffle the numbers around in various departments.

“The telcos are not buying as much voice equipment as they used to be, because there’s more margins to be found in the data side of the house,” he explained. “And going forward, we’ll start to see the shift of those voice services going from traditional voice equipment to data-based equipment, whether it’s Voice over IP or voice over some other protocol that will run on these high-speed networks that are currently being plopped in the ground.”

Nortel said it will achieve most of the layoffs through normal attrition and retirements. It appears, then, that the relative non-announcement of equal firings and hirings was made to calm already-jittery investors.

“There’s so much irrelevant angst in the marketplace right now,” company spokesman Andy Lark told ComputerWorld (US).