February 27, 2008 / 12:07 PM / 10 years ago

Nortel loss widens, plans to cut 2,100 jobs

TORONTO (Reuters) - Nortel Networks Corp reported a bigger fourth-quarter loss on Wednesday because of a $1.1-billion tax charge and said it will slash 2,100 more jobs as it faces persistently slow demand for the telecoms equipment it makes.

Nortel President and Chief Executive Mike Zafirovski speaks during a news conference in Ottawa May 2, 2007. Nortel Networks Corp reported a bigger fourth-quarter loss on Wednesday because of a $1.1-billion tax charge and said it will slash 2,100 more jobs as it faces persistently slow demand for the telecoms equipment it makes. REUTERS/Chris Wattie

Its shares fell more than 14 percent to a year low after it also said it expected 2008 revenue to rise by “low single digits” compared with 2007.

Since the bursting of the tech bubble at the beginning of this decade, Nortel and many of its competitors have announced thousands of layoffs and other cutbacks as they try to deal with slower sales and billions in losses.

“Growth is very slow for everybody, including Nortel, and it’s not going to get any better any time soon,” said Ed Snyder, principal analyst at Charter Equity Research.

In recent months, soft demand for telecom gear has been exacerbated by economic turbulence in the United States.

“It is a challenging environment,” Chief Executive Mike Zafirovski told analysts during a conference call. “As a result of it, we came at the lower end of our previous revenue guidance.”

At the end of 2006, the company had 32,550 employees — the most recent figure available. In addition to the 2,100 jobs it plans to eliminate mostly in North America, Nortel said it will move another 1,000 jobs to locations such as China and India where growth is higher and costs are lower. It did not say where jobs will be cut.

“The work force reduction is going to be necessary,” Snyder said. “The whole industry is suffering from too many players and not enough revenue.”

He said there hasn’t been a lot of consolidation and that competition with low-cost Asian vendors is continuing, adding “the combination basically means there’s a lot of fish feeding at the same pool and there’s not enough food.”

Nortel, North America’s biggest maker of telecom equipment, said it lost $844 million, or $1.70 a share, during the quarter, compared with a loss of $80 million, or 19 cents a share, for the same period of 2006.

The 2007 results included a one-time, noncash charge of about $1.1 billion related to changes in the company’s Canadian tax profile.

The Toronto-based company said revenue fell to $3.2 billion from $3.32 billion a year earlier. That was in line with analysts’ expectations, according to Reuters Estimates.

Its shares fell C$1.58, or 14.1 percent, to C$9.63 on the Toronto Stock Exchange.

The jobs moves will result in annual gross savings of about $300 million, with total charges to earnings of about $275 million. About 70 percent of the charges are expected to be booked in 2008 and the remainder in 2009.

“We believe that Nortel is expecting growth in its sales at (metro ethernet networks) and enterprise, with a stable carrier business,” Lehman Brothers analyst Inder Singh wrote in a note to clients. “We believe these assumptions are conservative and leave room for upside.”

Nortel was once a stock market darling that could boast of a triple-digit share price. But since the end of the tech bubble, the company has had to contend with painful cost-cutting amid a slump in demand and tough competition around the globe.

It has also seen its rivals consolidate while it deals with its internal problems, including an accounting scandal.

In a statement Wednesday, Zafirovski said 2007 was a “pivotal year” in which “significant progress has been made while upholding the highest standards of ethics and integrity.”

The company has switched its management team several times while it continues to try and right its course, but investors remain skeptical. The stock is down 73 percent in the last 12 months.

($1=$0.98 Canadian)

A Nortel sign is seen in downtown Toronto February 27, 2008. REUTERS/Mark Blinch

Additional reporting by Jonathan Spicer and Scott Anderson; Editing by Peter Galloway

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