Nortel posts big loss, to cut 1,300 jobs
CTV.ca News Staff
Published Monday, November 10, 2008 10:45PM EST
Last Updated Friday, May 18, 2012 9:29PM EDT
Nortel Networks Corp. announced Monday that it will slash 1,300 more jobs, including key management positions, and freeze salaries after posting a $3.4-billion third-quarter loss.
The news sent Nortel's stock plummeting 38 cents or 25.5 per cent to $1.11 on the TSX -- the lowest level ever.
"The tough economic conditions are clearly evident in the impact on Nortel's business," company spokesperson Mohammed Nakhooda told reporters gathered outside the company's headquarters in Toronto. "In response, we are taking decisive action to reposition the company, cut costs and preserve our cash base."
The telecommunications equipment manufacturer said the loss was inflated by a $1.14 billion writeoff of goodwill, which is the amount paid for previous acquisitions above their tangible value, as well as a $2.13 billion income tax hit.
In contrast to a net income of $27 million, or five cents per share, in the same period one year ago, the loss equalled $6.85 per share.
The company also experienced a 14 per cent drop in sales, to $2.32 billion, as its customers "cut back sharply on corporate spending," BNN's Michael Kane said Monday on CTV's Canada AM.
The company is warning that earnings in the current quarter may fall short of expectations, Kane said.
Nortel is also reporting that it is suspending the dividend on preferred shares.
"That almost never happens," Kane said.
In a news release, the company said that, "while (Network Networks Limited) is in a position to pay such dividends, its board of directors has determined that in this uncertain economic environment it would be prudent to maintain liquidity and preserve cash."
The job cuts will eliminate or streamline management positions throughout the company. About 25 per cent of the cuts will be made by the end of this year, while the rest will be scattered throughout 2009. Nortel has about 31,000 employees across the world, however, the company did not give further details on where the cuts will be made.
Eight years ago, Nortel employed nearly 100,000 employees, and was once the world's largest supplier to the telecommunications industry.
Beginning January 1, Nortel will cut key executive positions in an effort to "transition to a vertically integrated business unit," the statement read.
The news was announced Monday morning at the company's headquarters.
Those who will be leaving the company include chief marketing officer Lauren Flaherty, chief technology officer John Roese, global services president Dietmar Wendt and executive vice-president of global sales Bill Nelson.
"John is, in my opinion, going to be a real loss to the organization," said technology analyst Wayne Gudbranson. "He was the one that could articulate Nortel's corporate RnD vision right across the company."
Nortel spokesperson Ann Fuller said Roese has done a "fantastic job."
"He's done a fantastic job in really refocusing the RnD organization in the last couple of years," she said. "That work is going to continue to be used and is still going to continue to innovate, just in a different model."
Roese was not available for comment.
The company will also extend a hiring freeze and limit travel.
"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," Nortel President and CEO Mike Zafirovski said in a news release.
"We are therefore taking further decisive actions in an environment of decreased visibility and customer spending levels."
The cost-cutting measures are expected to reduce annual gross costs by about $400 million in 2009, the company said.
The news release said the company did not have an update on its ongoing effort to sell its metro Ethernet networking division.
With files from The Canadian Press and a report from CTV Ottawa's Paul Brent and CTV Toronto's John Musselman.