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Nortel forced to reforecast, put unit on block

Downturn and delays skewer Q3 revenues

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It’s back to the future at Nortel, with the company forced to tell investors it was scaling back its third forecasts amid a “sustained and expanding economic downturn”.

The benighted networking vendor is also planning a major restructuring, which if nothing else will definitely include the sale of one of its “premium assets” - its metro Ethernet networks business.

Nortel said it was experiencing “significant pressure as carrier customers cut back their capital expenditures further than previously expected.” At the same time, enterprise and metro customers are deferring new investments.

If this wasn’t enough, it also suffering from exchange rate pressures, and “certain product delivery delays from the third quarter into the fourth quarter.

The company now reckons it will pull in $2.3bn for the third quarter, compared to the $2.6bn it expected. It said gross margin would be 39 per cent, mainly because of a product delay and the customer mix in the carrier business.

"It is clear that the business environment in which we operate requires additional immediate and decisive actions," said Nortel President and Chief Executive Officer Mike Zafirovski. "A comprehensive review of our business is taking place and we are determined to reshape the Company to maximize its competitiveness, drive a significant increase in effectiveness and efficiency company-wide, and re-focus to establish a clear path for growth, profitability and renewed shareholder value."

For the employees, this means “further restructuring and other cost reduction initiatives to significantly reduce the company's cost base to achieve a more competitive business structure”.

The announcement comes just as the firm finally seemed to be scrubbing the taint of its slide in the wake of the dot com crash at the beginning of the decade. It posted massive losses had to restate years of results and ditched thousands of staff.

But, argued Zafirovski, all that leg work meant that it was now in a position to, er, throw itself into recovery mode again.

"The work that Nortel, and its thousands of employees worldwide, have done over the last few years to re-tool the company and fix its operational performance gives us the capability to make the necessary changes,” he said. “We will move with speed to do what is right for customers and shareholders alike." ®

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