Nortel unveils grisly details of cost reductions

Nearly 1,000 Canadian Nortel Networks employees will lose their jobs in the near future, according to the communication equipment maker’s cost reduction plan released Thursday. It’s a cruel blow to a workforce just recovering from earlier layoffs, said one industry observer.

Brampton, Ont.-based Nortel on Sept. 30 announced that it would chop 950 Canadian jobs as it aims to bring operating costs in line with revenues. The payroll purge is part of an overall initiative that will see the company cut a total of 3,250 jobs by next summer. Nortel also means to sell approximately 2 million square-feet of real estate.

“Our workforce actions are focused to disproportionately protect customer and sales facing roles, as well as continue our focus on new, innovative solutions,” Nortel CEO Bill Owens said in a statement.

Headcount reductions will occur in the research and development, sales and administration departments, according to the statement.

Most employees will get their walking papers by Dec. 31. The rest will know by June 30, 2005.

Mark Quigley, an Ottawa-based telecom industry analyst at The Yankee Group Canada, said the headcount reductions would be hard on Nortel’s workforce. He noted that the company has gone from 90,000 employees to little more than 35,000 in the past four years.

“You have tons of people who have gone through a significant number of cuts already, who survived, who started to think the company was turning around in terms of revenue and profits. Then all of a sudden, wham, to be hit with this scandal…and follow that up with another round of layoffs, it must be pretty disheartening.”

Accounting problems at Nortel first came to light late last year when the company announced that it would restate financial results for 2000, 2001, 2002 and the first two quarters of 2003 as part of an ongoing review of its assets and liabilities, following revelations that its past accounting had been manipulated.

In April, Nortel fired CEO Frank Dunn and the CFO. Nortel delayed its results for the first quarter of 2004. The RCMP subsequently launched an investigation of the firm’s financial practices.

“Given the financial cloud they’re under, I’m not surprised that they’re being very aggressive to hit their operational expense goals,” Quigley said. If not for the accounting problems, “we may not have seen this action at all.”

The changes outlined Thursday will cost Nortel approximately US$450 million, 35 per cent of which will show up on the corporation’s financial statements in 2004. The rest of the cost will affect the 2005 bottom line. Nortel expects to save US$500 million in 2005.

— With files from Allison Taylor

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