Nortel cuts staff, replaces Roth in latest round of reorganization.

Telecommunication equipment maker Nortel Networks Inc. announced this month further job cuts, predicted further losses this year and announced a new CEO to guide the company through major changes to its business and management.

In a statement released Oct. 2, Nortel said that as part of the restructuring it will reduce its workforce to about 45,000. Roth said in the conference call that the company currently has approximately 60,000 employees.

In its statement, Nortel estimated the adjustment would require about 10,000 layoffs and it would inform the affected employees by Oct. 31. However, both The Globe and Mail and the CBC reported the cuts to be an additional 19,500 workers.

If the reports are accurate this means that Nortel, which ended 2000 with 94,000 employees, will have reduced its work force by more than half. In June the company said it would cut an additional 10,000 employees from its work rolls, adding to the 20,000 in job cuts it announced earlier this year. Nortel will record a charge related to those cuts in the fourth quarter of this year.

Nortel said the company would replace its president and CEO, John Roth, who announced in April that he would step down from the position. Frank Dunn, Nortel’s chief financial officer (CFO) and a director, will replace Roth on Nov. 1 and Roth will remain on the company’s board as vice-chairman through the end of 2002.

“We interviewed a large number of outstanding candidates, and at the end of the day…we settled on Frank as being the ideal candidate,” Roth said in a conference call following the announcement.

Terry Hungle, formerly president of finance for Nortel Networks Americas, will replace Dunn as CFO. Nortel will also shift a number of senior managers as it narrows its business to focus on three main areas: optical long-haul networks, wireless networks and metropolitan networks.

For the third quarter of 2001, Nortel said it expects revenue, excluding charges, to total about US$3.5 billion. Net losses, excluding charges, will come in around US$910 million. Analysts polled by research firm Thomson Financial/First Call had expected Nortel to report revenue of about US$3.98 billion. The analysts estimated Nortel’s loss per share would be US$0.21; Nortel did not offer a comparable figure.

Including all special charges, revenue will be only US$1.3 billion, far below Nortel’s operating income due to costs associated with restructuring and other one-time charges. When taxes and all special charges are taken into consideration, Nortel now expects a net loss of approximately US$3.6 billion or US$1.13 per share.

The company lowered the quarterly revenue figure it will have to make to break even from US$5 billion to US$4 billion. Roth said the company has managed to lower its break-even point by cutting its operating expenses through layoffs and the sale of certain assets.

“We’re well on track with divestment of floor space, facilities and other things,” Roth said. In line with cuts to its payroll, Nortel said it would rid itself of the offices where those employees work – a cut of about 13.3 million square feet of space.

Nortel earlier announced another major business divestment that will contribute to the restructuring efforts: the company said it would sell nearly all the assets of its Clarify CRM division to Amdocs Ltd. for approximately US$200 million in cash. Nortel bought Clarify in October 1999 for approximately US$2.1 billion

– With files from IDG News Service

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