Thursday, October 4, 2001

Nortel cut 20,000 jobs, says worst is over
By Tom Cohen
Associated Press

TORONTO — Despite another horrendous day, Nortel Networks officers say the worst may be over for the Canadian fiber optic leader that has become near synonymous with the downfall in the high-tech industry.

Nortel announced Tuesday it expected a $3.6 billion third-quarter loss, raising the total losses for the fiscal year to more than $20 billion. It also said it will cut 20,000 jobs, to reduce its work force to 45,000 from about 95,000 when the year began.

The layoffs follow previous cuts of 30,000 jobs, and outgoing chief executive John Roth acknowledged that revenue was below $4 billion for the quarter, far below estimates as high as $5 billion. Still, he said signs indicate capital spending in the industry may be leveling after a long fall.

“We are seeing the market amongst our customers starting to firm up a little bit as I think the shakeout in the industry is well along,” Roth said. “And while it isn’t all done yet, it is becoming fairly predictable.”

The “more sustainable spending levels” have eroded excess inventory, Roth said, “and while we’re ahead of plan we see that we now need to reduce our break-even point. We’re going to reduce our head count a little further.”

Nortel also announced that chief financial officer Frank A. Dunn would succeed Roth as chief executive officer on Nov. 1, with Roth serving as vice-chairman of the board. Roth previously announced he was stepping down.

Board chairman Lynton “Red” Wilson said Dunn, a McGill University graduate who has been with Nortel for 25 years, emerged as the best candidate from an “extensive” search inside and outside the company.

“He has played a leading role putting in place a business structure that ensures the company will be both sustainable and profitable in an industry that has gone through an abrupt and severe correction,” Wilson said.

Nortel has been troubled for almost a year due to problems that have dominated the meltdown of the technology industry: misguided acquisitions at sky-high prices, overly aggressive expansion, risky lending practices with new customers, and a tendency toward exuberant forecasts.

Earlier Tuesday, the company announced it sold off a high-priced acquisition for a fraction of the cost. The Clarify customer relations management unit was sold to Amdocs Ltd. for $200 million, less than 10 percent of the $2.1 billion in stock Nortel paid for the company last year.

Nortel had previously announced it would retreat from a market the company entered only recently through acquisitions — the business of making DSL equipment for high-speed Web service — dumping some of the companies purchased for that purpose.

The company’s stock has plunged 90 percent in less than a year, losing more than $300 billion in market value. Nortel shares fell 16 cents, or 3 percent, to $5.13 in morning trading Wednesday on the New York Stock Exchange.