Nortel Networks Corp., which has already slashed thousands of jobs over the past few years, announced today it would be cutting 1,900 more positions globally.
The Brampton, Ont.-based firm also said it would be creating 800 jobs overseas.
The net reduction of approximately 1,100 positions globally is the latest in a “series of actions Nortel is taking to achieve a targeted operating-margin expansion in excess of US$1.5 billion in 2008,” the company said in a statement.
It also announced it would eliminate approximately 350 middle management positions throughout the company and – through business unit efficiencies – approximately 350 additional positions globally.
CEO Mike Zafirovski said the restructuring continues Nortel’s efforts to “increase competitiveness, better manage our costs, and secure the resources to fuel Nortel’s innovation.”
He said Nortel has taken steps – both near- and long-term – to make its operations more efficient and customer-focused. “I am confident in the progress we are making in turning around Nortel and recreating a great company.”
At least one Canadian telecom analyst applauds Nortel for what she calls a “bold step,” but also expressed sadness that the company is steadily losing its Canadian identity.
“The cuts will certainly help cash flow, although it will hurt in the short term. I hope some of the 800 jobs created will here because Nortel was our gem, but it doesn’t feel like a Canadian firm anymore,” said Roberta Fox of the consultancy firm Fox Group in Markham, Ont.
Nortel – the largest maker of telephone equipment in North America – has been beset by a host of problems in recent years including an accounting scandal, and weak earnings.
The company also outlined significant changes to employee retirement benefits.
Beginning January 1, 2008, it said it would introduce key changes to the current Nortel Capital Accumulation and Retirement Program in the U.S. and Canada. Employees who are currently in defined benefit pension plans will be moved to defined contribution retirement programs; those already in defined contribution programs will remain in these. As of July 1, 2006, current post-retirement healthcare benefits will be eliminated for employees who are not age 50 with five years of service on July 1, 2006.
The pension plan changes are expected to reduce Nortel’s pension expenses by US$100 million starting in 2008, and generate savings of more than US$400 million in cash by the year 2012.
Fox also said the announced lay offs are not as bad as the plans to reduce pension benefits. “Cutting benefits is very disturbing news. Nortel has been known for taking care of its people. This sends out a message that the culture and company commitment to the people working there is changing.”
Nortel also announced a global operations restructuring initiative today. “The long-term plan is to consolidate more than 100 sites globally into fewer operations centres of excellence focused on delivering engineering, product and technical support, order management, purchasing and data analysis, among other functions,” the company said in a statement.
It said as these sites are consolidated, Nortel would eliminate approximately 1,200 operations positions globally – in part through attrition – while it expected 800 new operations jobs to be created.
Fox noted that Nortel has a very strong telework program, which it has implemented since the 1990s. “So consolidating their operations will work well for them.”
Nortel also announced the creation of two new operations centres in Mexico and Turkey. The choice of two locations, it said, had to do with Nortel’s established operations in these countries, a strong labour pool, cost competitiveness, and proximity to major customers based in these regions.
Nortel also announced an “organizational simplification” initiative designed to “flatten the organization and shift to a culture marked by agility and accountability.”
The total cost for the global operations restructuring and “organizational simplification” is estimated at US$100 million over the next two years, of which approximately US$35 million of the charge to the income statement is expected to be taken in the second quarter of 2006.
Annual savings from these actions is targeted to be approximately US$100 million in 2007 and approximately US$175 million by 2008.