Nortel cuts to hit RTP
Triangle Business Journal - by Chris Coletta
Nortel, the struggling telecom equipment maker, will cut 1,300 jobs – including some in Research Triangle Park – and freeze salaries as it tries to conserve the cash it has left. The company also will fold its Global Services operation, which has a big RTP presence, into its three remaining business units as it seeks to streamline operations.
Those were just some of the cost-cutting initiatives announced today at Nortel (NYSE: NT), which has headquarters in Toronto and some 2,200 Triangle employees. The company also says it will lay off at least four top executives, severely curtail travel, examine its real estate holdings and look to cut back on its relationships with consultants.
The cash-cutting moves are expected to save $400 million in operating costs in 2009.
The cuts were widely expected for Nortel, which has been battered by the current economic downturn as key customers cut back spending on their telecom networks. Nortel slashed its business forecast in September and said it would consider selling its small, but fast-growing, Metro Ethernet business to raise cash.
“In September, we signaled our view that a slowdown in the market was taking place,” Nortel CEO Mike Zafirovski said in a written statement Monday. “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.”
In late September, UBS analyst Nikos Theodosopoulos downgraded shares of Nortel. Theodosopoulos wrote that he expected Nortel to have a cash balance of $1.3 billion by the end of 2010 – and the company, which burns through hundreds of millions of dollars a year, also has a $1 billion debt repayment due in July 2011.
Job cuts coming
A Nortel spokesperson says cuts are likely to come to Nortel’s RTP operations, though the company isn’t breaking down job losses by individual campuses or business unit. All of Nortel’s North American campuses are likely to face cuts, the spokesperson says.
If jobs are cut at RTP proportionally to cuts in the rest of the company, Nortel would lose between 50 and 100 jobs here.
Yet even such large cuts were less severe than expected. Some analysts had thought Nortel would announce Monday as many as 5,000 layoffs from its global work force of around 32,000.
And it appears that investors expected the same. What was good news for workers wasn’t so for stock traders, who sent Nortel’s shares down 13.7 percent, to $1.01, in afternoon trading.
What about Global Services?
Also unclear: the future of Nortel’s Global Services business, which helps maintain carriers’ networks and helps set up telephone networks for businesses large and small. The services business has a big presence in RTP, including the headquarters of collaborations with Microsoft and IBM.
As part of its reorganization, Nortel says, the company will fold the services unit into its three remaining units – one focused on metro networks, one on big business customers and one on telecommunications carriers. Unit President Dietmar Wednt will leave Nortel.
The services businesses has been one of the reasons that recent cuts at Nortel, which has shed 6,000 jobs in the last three years, haven’t fallen on RTP as hard as they’ve fallen on operations elsewhere. Though the unit is somewhat outside Nortel’s core focus of selling telecom equipment, it has fared better than that core business, with third quarter revenue falling by 6 percent year over year compared to 14 percent companywide.
A Nortel spokesperson says the company’s employee base in RTP is broad. Workers in the Triangle serve a variety of functions including customer service and support, finance, information technology, human resources, marketing and R&D.
Nortel isn’t commenting right now on cuts to individual business units, a spokesperson says.
In the third quarter, Nortel said Monday, it lost $3.4 billion – nearly all of which came on non-cash charges after the company wrote down the value of its goodwill and took a big tax-related adjustment. A year ago, Nortel earned $27 million.
Sales fell, by 14 percent, to $2.32 billion.
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