Nortel to cut 3,500 jobs, may sell optical-parts unit

The Associated Press
Thursday May 30, 2002

NEW YORK – Telephone-equipment maker Nortel Networks Corp. said Wednesday it will cut another 3,500 jobs, more than expected, and may sell its optical-components business as it revamps its operations to save money. 

Nortel now expects its work force to bottom out at 42,000. Last month, Nortel put the figure at 44,000. The Brampton, Ontario, company has cut about 50,000 jobs since the beginning of last year, and employed 47,000 people at the end of the first quarter. 

Nortel said it plans to streamline the optical long-haul business because it doesn’t expect a “meaningful” recovery in that market before late 2003 or early 2004. The plan includes the possible sale or resizing of Nortel’s optical-components business. 

“We are aligning our optical business model to where we see the industry going to ensure we are well-positioned when spending resumes,” president and chief executive Frank Dunn said. 

“Optical backbone networks are the foundation of multimedia broadband networks and we expect Nortel Networks to remain an industry-leading provider of end-to-end optical networking solutions,” Dunn said. 

The latest job cuts will result in charges of about $600 million, mainly in the second and third quarters. These charges are in addition to the expected second-quarter charge of about $150 million for previous job cuts. 

Nortel now expects second-quarter revenue to be flat to down 5 percent from the $2.91 billion reported in the first quarter. Just last month, Nortel said it didn’t expect a significant change in sequential revenue growth. 

However, Nortel expects sequential improvement in the pro forma loss from continuing operations from the 14 cents a share reported in the first quarter. 

The pro forma figure won’t include acquisition-related costs, charges, stock-option compensation from acquisitions and divestitures, a gain or loss on the sale of businesses, gains associated with certain investment sales, and any associated items included in the income or loss of equity accounted for as investments. 

Nortel, which had annual revenue of $17.51 billion last year, maintains its long-held goal of having a break-even cost structure in place by the fourth quarter. But with the latest realignment, the company cut the fourth-quarter revenue target to $3.2 billion from $3.5 billion. 

Nortel said it is considering more opportunities to raise capital to strengthen its balance sheet and liquidity, which may include an equity-based financing transaction. A company spokesman said that at the end of the first quarter Nortel had $3.1 billion cash and $4.8 billion debt. 

In Wednesday morning trading, shares of Nortel climbed 11 cents, or 4.4 percent, to $2.63 on the New York Stock Exchange.