Nortel Networks announced Wednesday it will lay off 2,900 employees, and shift some 1,000 additional positions to cheaper overseas locations.
The cuts and other measures will generate annual savings of approximately $475 million (US$400 million), the Brampton, Ont. based telecom firm said. Canadian IT industry analysts note this latest round of lay-offs – part of a restructuring program Nortel announced last year – will likely have a positive effect on the company’s viability.
“The program has been getting along fine,” said Lawrence Surtees, vice-president and principal analyst for communications research at IDC Canada in Toronto.
He, however, added restructuring announcements have been customary at Nortel and other telecom companies for decades, in good times and bad.
“In the short term the layoffs will have a negative impact on workforce morale, but they could contribute to Nortel’s long-term financial health.”
Surtees’ comments were echoed by another Canadian analyst.
“The message is the business transformation plan is heading in the right direction,” said Carmi Levy, senior analyst at Info-Tech Research Group Inc. in London, Ont.
News of the job cuts at Nortel came a day after the company announced Peter Currie would step down from his post of executive vice-president and chief financial officer (CFO) effective April 30 this year.
The company did not say if the two developments were connected.
“These are tough but necessary measures, and we recognize the impact they will have on affected employees,” said Nortel CEO Mike Zafirovski in a statement.
Another analyst said the job cuts are a sign that Zafirovski is still hard at work at trying to keep Nortel at an even keel.
“He’s still righting the ship,” said Kevin Restivo, analyst for the SeaBoard Group, a Toronto-based IT consultancy firm.
Restivo said “it could take another three to four quarters before Nortel realizes any benefits from the cuts.”
Surtees and Levy offered different perspectives on Currie’s imminent exit.
According to Levy, the executive’s forthcoming departure from Nortel appears to be a sign the company was “not happy” at the pace of the restructuring.
Surtees called the proximity of the two announcements (Currie’s resignation and the layoffs) a “mere coincidence.”
He said both matters had to be dealt with before Nortel made its fourth quarter report available to shareholders in the coming weeks.
Currie held various financial positions at Nortel from 1979 to 1992 and became senior vice-president and CFO from 1994 to early 1997.
He later served as vice-chairman and CFO for the Royal Bank of Canada Financial Group and, for a time, was regarded as a contender for the CEO post.
Surtees said by then Currie had established a reputation as a “financial fix-it guy” in the industry.
Currie came back to Nortel as CFO in 2005, at the request of then CEO Bill Owens. “It was probably a labour of love for Currie to return despite the financial and accounting troubles plaguing Nortel,” said Surtees.
He described Currie as a “driven man” and said the Nortel exec must have decided to move because he was always “looking for a challenge.”
Both Levy and Surtees said it’s unlikely Currie was let go, noting that Nortel would have named a successor were it planning to replace the CFO.
“They would have let him go and changed the locks. As it is, Currie is staying until April,” said Surtees.
Long regarded the “jewel” of the Canadian IT industry, Nortel employed more than 95,000 workers at the time when the IT bubble burst in the year 2000. After a series of financial scandals, the company’s employee count shrunk to about 34,000.
The coming layoffs will further reduce that number to around 31,000.
Late last year Zafirovski and a new executive team announced the company would be unveiling a series of business transformation plans to improve Nortel’s fortunes.
“This cannot be fixed overnight,” the Nortel chief said at the time, adding his management team was aware of the challenges ahead and had “a plan to win.”
The layoff announcement had a positive impact on Nortel’s stock, which rose by four per cent in trading yesterday.
The Canadian Imperial Bank of Commerce (CIBC) World Markets Inc. said it “remains neutral on Nortel” but sees a “positive trend in moving the costs down and managing the balance sheets.”
The CIBC report, however said, “Nortel’s strategic focus on enterprise, metro and wireless is too broad to remain in remain competitive on all fronts.”
“More cuts are desired,” the report said.
The company, meanwhile, has suggested it will attempt to minimize the negative impact of the restructuring program on employees.
“As we roll out the various initiatives over the next two years, every effort will be made to leverage normal attrition and re-deploy affected employees to other areas of the company,” said Zafirokski in a statement.