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Nortel posts $3.4B loss, moves to cut costs

Amid an economic downturn, Nortel Networks Corp. is cutting jobs and restructuring after posting $3.4 billion in losses for the third quarter.
During a conference call, CEO Mike Zafirovski said the Canadian networking equipment company would eliminate 1,300 jobs and a total of 2,500 jobs by the end of 2009. The company also unveiled plans to streamline its business practices in an effort to preserve cash and focus on areas that are generating business for the company. Nortel will also part ways with some top executives as its reshapes its operations.
“These results are disappointing, but with the economic downtown, not surprising,” Zafirovski said.
A major reason for the loss in the quarter was a one-time charge of $3.2 billion the company took to write-down tax adjustments of $2.1 billion and $1.1 billion in goodwill charges.
Revenue also decreased 14% for the quarter when compared with the third quarter a year ago. The company took in $2.32 billion for the quarter, which is also lower than its second quarter showing of $2.62 billion.
For the quarter, the company’s Carrier Network division revenue declined 24% to $822 million compared with a year ago. Slower spending by its customers, mainly in North America, was a big reason for the loss, company officials said.
Enterprise Solutions accounted for $616 million in revenue, a decrease of 8% when compared with the third quarter in 2007. Global Services posted $507 million in revenue, a 6% year-over-year drop, and Metro Ethernet Networks revenue dropped 12% to $317 million.
The company performance was in line with projections officials made in September as the economy began to spiral downwards.
Cuts made to its workforce are projected to save Nortel $260 million for 2009. About 25% of the cuts will be made this year and the rest will occur in 2009.
Nortel will also separate its business model into three areas. One sector will focus on enterprise customers and two others will be responsible for product, services, applications, marketing and portfolio business and market development.
“We are taking aggressive action to reduce cost and preserve cash,” Zafirovski said. “We believe it is time for change.”
The ongoing restructuring and other cost reductions is projected to save Nortel $400 million in 2009. The company also has in place a freeze for hiring and salaries and has also cut its travel budget.
Departing executives are CMO Lauren Flaherty, CTO John Roese, global services president Dietmar Wendt and executive VP of global sales Bill Nelson.
“It is always difficult to see colleagues go, but we made the necessary decision to consolidate our executive layer and reshape Nortel,” Zafirovski said.
For 2009, Nortel expects to remain around the low end because company officials are expecting the economic climate to deteriorate further.
Zafirovski said the company will move forward concentrating on developing enterprise solutions and developing equipment for next-generation networks.
With the changes, Zafirovski said Nortel can become and stay “relevant.”
“This is a critical time for Nortel,” he said.
Nortel’s stock was down 14% on the news to around $1 per share.

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