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Nortel retools, wields ax

In its latest effort to get back on track, the troubled telecommunications equipment maker plans to cut 3,500 jobs and may sell its optical-components division.

Nortel Networks said Wednesday that it plans to cut 3,500 jobs and may sell its optical-components division.

The news came as the company said its revenue might be lower than it had forecast for the second quarter.

The troubled telecommunications equipment maker has had difficulty meeting projections because of budget-tightening by its customers. In February, the company lowered its first-quarter outlook right after its chief financial officer resigned.

In its latest effort to get back on track, Nortel is focusing on restructuring its long-distance optical business. The plan includes the potential sale or pruning of the optical-components business.

Nortel said it would take a charge of around $600 million, including $200 million in cash related to the restructuring, most of which will be recorded in the second and third quarters of 2002. That write-off will add to the $150 million charge Nortel will take in its second quarter, a result of previous layoffs.

The company remained cautious, saying it does not expect a recovery in the long-distance optical business anytime before late 2003 or early 2004. The company added that it would focus on the areas expected to rebound when the market recovers, such as optical switching, photonic transport capabilities and network management.

Nortel said the restructuring moves are expected to help the company break even on quarterly revenue of $3.2 billion by the fourth quarter. It had previously said it would need revenue of $3.5 billion to break even.

The restructuring will also give the company enough cash to fund operations and meet agreements on its covenants with banks. But Nortel added that it was still considering financing options in order to raise money.

Meanwhile, Nortel said that second-quarter revenue was expected to be flat to down 5 percent from the first quarter. Management predicted flat revenue, and analysts were expecting revenue of $2.91 million, even with revenue last quarter, according to consensus estimates from First Call.

Nortel's loss estimates remained the same. The company confirmed forecasts that its net loss would improve over the first-quarter's loss of 14 cents a share. Analysts are expecting a loss of 9 cents a share according to First Call.