Nortel cuts jobs as losses widen

With demand for its traditional telephony gear waning, telecom equipment maker Nortel Networks is cutting 2,100 jobs as it tries to stem losses.

Telecommunications equipment maker Nortel Networks said it will cut more jobs as the company's losses widen.

The company's stock plunged some 13 percent on Wednesday to $9.96 after the company reported that its fourth-quarter earnings declined about 3.7 percent to $3.2 billion. The company reported a loss for the fourth quarter of $884 million compared to a loss of $80 million in the fourth quarter of 2006. The higher losses were due to a tax-related charge, the company said.

To help curb spending and get the company back on track, Nortel said, it would cut 2,100 jobs. It also plans to relocate about 1,000 workers to places where wages are not as high. At the end of 2007, Nortel said it employed about 32,500 workers. The job cuts should save the company about $300 million a year, but the company said it will also take a onetime charge for the plan of about $275 million.

Nortel is in a tight spot. The company is facing slowing demand for its traditional telephony gear. Chief Executive Officer Mike Zafirovski, who took the top spot at the company in 2005, has been trying to grow Nortel by focusing on new technologies. But it's clear the company is struggling. Part of the problem is its balance sheet. But another big problem is that the company literally missed the boat in the 3G wireless equipment market, and as a result has only small market share here in that segment.

The company recognizes its shortcomings and has been focusing on the next generation of wireless technology, namely by developing gear using the WiMax technology. Nortel has also said it's committed to supplying products for the competing 4G wireless technology called LTE (Long Term Evolution). But network builds using these technologies are still in their early days. In terms of WiMax, Sprint Nextel is the only major carrier in the U.S. to commit to using the technology. And its own financial troubles have called into question whether or not the network will actually get built.

Recently there have been rumblings that Nortel is in talks with Motorola to combine their wireless infrastructure businesses. This could be good for both of the companies. Together they would be in a much better position to address current GSM network builds in Europe and other parts of the world where that wireless technology standard is used widely. And at the same time they could better address markets like the U.S. and South Korea, where mobile operators use CDMA technology.

Nonetheless, Mark Sue, an analyst with RBC Capital Markets, says it could be a long time before Nortel is able to turn things around.

"Nortel's revamped management team is doing the best that they can in our assessment," he said in a research note on Wednesday. "Unfortunately, the prior management team at Nortel left the company with a very damaged balance sheet. And with limited resources and little currency to afford a major strategic rethink, the company may have to resort to a year of basic blocking and tackling."

 

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