Nortel offers accounting update, sells manufacturing biz to Flextronics

Nortel Networks Ltd. anticipates it will be ready to release financial results for Q1 2004 as early as mid-July, the company said Tuesday in its most recent bi-weekly status report, ordered as a result of Nortel’s restatement processes by the Ontario Securities Commission.

While the financials are expected to be limited, a Nortel statement explained that the company expects to provide an updated assessment of just how much of an impact the restatements will have versus previously reported financial results.

Still, the network gear maker said it does not expect to have ready the financial statements for Q2 2004 by August — the required deadline set by certain U.S. and Canadian securities regulations.

In April, Nortel announced that it would have to correct a substantial number of its financial statements. Fiscal quarters in question included all of 2003, when the company reported a net gain, but in fact should have recorded a loss. Nortel fired CEO Frank Dunn, CFO Doug Beatty and controller Michael Gollogly. The company then appointed Bill Owens, a Nortel board member, to the top post.

Nortel is moving ahead with other aspects of its operations. In a separate announcement Tuesday, the company said it has reached an agreement with Singapore-based Flextronics Corp., in which Nortel will sell off certain optical, wireless and enterprise manufacturing operations in Brazil and Canada to Flextronics.

Under the four-year manufacturing deal, Flextronics will assume the majority of Nortel’s systems integration activities, design services, test and repair operations as well as the management of the related supply chain and suppliers, the companies said.

Nortel said the sale is an important part of its strategy to enable it to focus its resources and efforts on areas that offer greater competitive advantages including voice over IP and DSL technologies.

The Brampton, Ont.-based company stands to receive between US$675 million and US$725 million in cash from the sale of its manufacturing operations in Brazil and Canada and said it will save between US$75 and US$100 million annually.

However, the company also stands to lose in the way of 1,600 Canadian employees, something that saddened telecom analyst Roberta Fox, president of Markham, Ont.-based Fox Group Consulting.

Fox also said that while the decision to sell off its manufacturing plants in Canada and Brazil is a smart move that follows in the footsteps of what many other companies are doing, she is concerned about the sale of the design services arm.

“I applaud the effort of outsourced manufacturing but I am uneasy about the design services,” she said. “How can you control your destiny if you are not designing it to what your customers want? Why would you give up design services of your own core products?”

Fox noted that as far as customer satisfaction goes, “they don’t care that you didn’t make the boards that are in your equipment.” She said that what customers are concerned with is that products offered are cost-effective and are supported by standards.

“If this (deal) will help Nortel keep their products cost-effective, then it is a smart move.”

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