Nortel tumbles on cuts, revised outlook

By Susan Rush
From The August 28, 2002 Edition Of CED Broadband Direct

As customer spending for telecom gear continues to wane, Nortel Networks is weighing its options. The latest: the company plans to cut 7,000 more jobs and has revised its third-quarter sales forecast. The company's stock fell nearly 18 percent at one point in morning trading action.

The telecom equipment giant has eliminated roughly 50,000 jobs since last year. Following these latest cuts, which are expected to be completed by the end of the year, Nortel's work force will total roughly 35,000. In May, the company speculated that its headcount would bottom out at around 42,000.

Nortel has set a goal of returning to profitability by the end of June 2003. "In our drive to achieve this goal, and in light of the ongoing pressure on customer capital spending plans globally, we are taking steps to further reduce our quarterly breakeven cost structure -- not including cost related to acquisitions and any specials charges or gains -- to below $2.6 billion," Nortel President and CEO Frank Dunn said. In addition to the cuts, Nortel plans to shutter some facilities. Previously, the company had stated its quarterly break-even cost structure was $3.6 billion.

Looking ahead to the third quarter, the company now expects revenue to be about 10 percent lower than the numbers posted in the second quarter. A prior forecast, called for revenue to be roughly flat. Nortel posted second-quarter revenue of $2.77 billion.

Nortel shares were off 22 cents, trading at $1.01 as of 11:43 a.m. EDT. The hit others in the networking sector as well. During the same time frame, Alcatel shed 5.8 percent to $5.22, Lucent Technologies fell 11 percent to $1.68 and Cisco Systems dipped 1.5 percent at $13.81.