Nortel Posts Massive Loss, Chops 1,300 Jobs

This latest round of layoffs at the Toronto-based networking and communications company follows two years of turmoil. In early 2007, Nortel slashed 3,900 jobs and moved 1,000 positions to cheaper locations like China and India. A year later, Nortel cut another 2,100 jobs.

The $3.4 billion quarterly loss, or $6.85 a share, is Nortel's biggest quarterly loss in seven years. It included a $3.2 billion expense " a $1.14 billion goodwill write down combined with a $2.07 million deferred tax adjustment. Additionally, Nortel's third quarter results included restructuring charges reaching roughly $50 million.

Nortel president and CEO Mike Zafirovski, however, said Nortel's poor performance falls in line with the revised 2008 guidance the company released in September. On Sept. 17, Nortel cut revenue forecasts and said more restructuring was expected.

"In September, we signaled our view that a slowdown in the market was taking place," he said in a statement. "In the weeks since, we have seen worsening economic conditions, together with extreme volatility in the financial, foreign exchange and credit markets globally, further impacting the industry, Nortel and its customers. We are therefore taking further decisive actions in an environment of decreased visibility and customer spending levels."

Nortel is the latest in a string of technology companies that have slashed jobs and tighten belts to weather the economic downturn, with many, including Qwest Communications, Motorola, Lenovo and others, cutting jobs or restructuring in other ways to cut costs. In Nortel's case, the company expects its cost-reduction plan to reduce annual gross costs by $400 million in 2009.

"We are acting quickly to become a simpler and leaner company, with the greater flexibility and responsiveness required to manage our business in a rapidly changing marketplace," Zafirovski said. "We are deeply committed to customers, and are taking the necessary steps to adjust our operating model and become a more customer centric partner that delivers the value and innovation they need to succeed."

Since joining Nortel in late 2005, Zafirovski has cut roughly 18 percent of the company's work force and all told Nortel has lost more than $4.5 billion since he took the helm.

In the third quarter, Nortel sales fell a total of 14 percent to $2.32 billion, down $2.71 billion from the third quarter 2007 and down from $2.63 billion from the second quarter of 2008.

Revenue from enterprise solutions dropped 8 percent to $616 million, while carrier networks dropped 24 percent to $822 million and global services revenue dropped 6 percent year over year to $507 million.

Nortel's Metro Ethernet Networks revenue dropped 12 percent to $317 million. That division has been on the auction block since September, when Nortel announced it was looking for potential buyers. Originally, Nortel expected that division to bring in $1 billion if sold. Nortel provided no update on the Metro Ethernet division's possible divestiture on Monday.

Additionally, a number of Nortel's top brass will vacate their posts in the new year, including CTO John Roese and chief marketing officer Lauren Flaherty. Global services president Dietmar Wendt and executive vice president of global sales Bill Nelson are also expected to leave Nortel come January 1.

"The work accomplished by these executives is nothing short of exceptional, and Nortel and our customers will continue to benefit from the capabilities they have built," said Zafirovski. "It is always difficult to see colleagues go, but we made the necessary decision to consolidate our executive layer and reshape Nortel."