Force of economic downturn hits Nortel – 1,300 jobs cut

10 Nov 2008

Communications equipment giant Nortel has felt the full force of the winds of change with a US$3.4bn loss that will result in the company reducing its global workforce by 1,300 workers.

Revenue in its third-quarter results fell 14pc to US$2.3bn, which the company said was caused by the challenging economic environment.

Gross margin of 39.2pc decreased due to what the company described as an unfavourable product mix.

Future Human

Nortel said it hopes to recoup annual cost savings of US$190m by implementing a restructuring plan that will see a reduction of around 1,300 positions. Some 25pc of these reductions will take place this year, with the remainder happening next year.

The company has also decided to deploy a new operating model that will decentralise several corporate functions into a vertically integrated business unit.

“In September, we signalled our view that a slowdown in the market was taking place,” chief executive officer Mike Zafirovski explained.

“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.

“Our performance in the third quarter of 2008 is in line with our 17 September expectations. Operating expenses in the third quarter are down significantly, partly as a result of immediate additional actions taken by the company to improve our cost-base, decreasing over US$100m both sequentially and year-over-year,” said Zafirovski.

“It is important to note that despite the business environment, we continued to see important, multi-year customer wins in key areas of our business, validating the value and innovation that Nortel delivers to customers.”

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years