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Nortel earnings tank with worsening economy

Telecom equipment maker Nortel Networks announces its biggest quarterly loss in seven years as the company struggles to survive the economic downturn.

Nortel Networks, North America's largest maker of phone equipment, reported its biggest quarterly loss in seven years amid a worsening economy.

The company, which has been struggling to get back on track since the last economic downturn in 2001, said Monday that it lost $3.4 billion, or $6.85 a share, during the third quarter of 2008. This includes a $3.2 billion write-down on the value of part of its business as well as deferred tax assets.

Due to sharp losses in the third quarter, the company announced 1,300 job cuts as well as other cuts across the business. Specifically, the company plans to freeze travel, end salary increases, and consolidate upper management, which includes losing at least four top executives. CTO John Roese and Chief Marketing Officer Lauren Flaherty are among the executives losing their jobs.

Since CEO Mike Zafirovski came onboard in 2005, Nortel has lost more than $4.5 billion. And he has cut more 6,000 jobs, or about 18 percent of Nortel's workforce.

Nortel had been struggling even before the economy started to tank. The biggest problem for the telecom equipment maker is that much of the company's wireless sales are centered around an older technology called code division multiple access, or CDMA. This technology is used by Verizon Wireless and Sprint Nextel in the U.S., but it's not widely used outside the U.S. And as Verizon and Sprint move toward next-generation wireless technology, Nortel will have to compete with other suppliers for that new business.

And then there is the economy. Cisco Systems CEO John Chambers noted last week during his company's earnings call that it had seen a sharp decline in sales from September to October. Nortel's Zafirovski also noted that its customers had scaled back spending significantly toward the end of the quarter.

But unlike Cisco, Nortel was already in trouble before the downturn hit. And while Cisco can scale back slightly while it invests heavily in new markets, Nortel is being forced to hunker down and simply try to survive.

The company has already been trying to sell some of its businesses, including its Ethernet switch business. But as the economy worsens, analysts believe it will be even more difficult for the company to find a buyer who is willing to pay the price that Nortel had hoped it could get for the business unit.