Nortel to lay off 10 percent of staff

Nortel Networks will cut 10 percent of its workforce, or around 3,500 jobs, to reduce costs.

The cuts will mainly affect middle management, President and Chief Executive Officer Bill Owens said Thursday in a conference call with journalists.

The staff cuts and cost savings relate to the consolidation of management and administration functions as the company combines its optical, wireline and wireless networking products to build converged networks, Owens said.

The staff cuts will cost between US$300 million and US$400 million, and should result in annual cost savings of US$450 million to US$500 million, the company said in a statement. The cuts should be complete by the end of the year, it said.

Although the company is cutting management posts now, it will add sales people going forward, Owens said.

Cost savings will come from other areas too, as the company consolidates its internal software systems to eliminate some of the 100 or more applications it uses today, he said.

"We will be installing SAP across the company, which should in itself add to the efficiency and cost reduction at Nortel," Owens said, referring to SAP AG, which makes applications for managing a variety of business operations.

Improved efficiency and reduced costs are by no means inevitable with such endeavors: Hewlett-Packard recently reported poor financial performance in its enterprise servers and storage business unit after sales took a hit due to problems entering orders into a new SAP system.

Owens announced a restructuring of senior management, giving him tighter control of the company. The president of federal systems, a business unit focused on the government sector, and the chief information officer will both now report directly to him, he said.

Nortel will also recruit a chief marketing officer reporting to Owens, giving greater emphasis to the marketing function, he said.

The company also announced preliminary estimated financial results for the first half of this year. Estimated revenue for the half year totalled around US$5.1 billion, split evenly between the first two quarters, Chief Financial Officer Bill Kerr said in the same conference call. He estimated net earnings per share for the half-year at between zero and US$0.02, split evenly between the two quarters.

In the first two quarters of 2004, around 51 percent of Nortel's revenue came from wireless networks, and 10 percent from optical networks, the company estimated. The share of revenue from enterprise networks rose from 21 percent to 22 percent between the two quarters, while that from wireline networks slipped from 18 percent to 17 percent, the company said.

Nortel expects to file full reports for the first two quarters of 2004, and restated quarterly reports for the whole of 2003, by the end of September, it said. The company is being investigated by the Ontario Securities Commission and the U.S. Securities and Exchange Commission regarding restatement of results as far back as 2001.

"We are not simply restating the numbers," Owens said. "We are putting systems in place to ensure Nortel's financial accountability is as good as any in the industry."

The company also announced that a class-action lawsuit has been filed against it in the Ontario Superior Court of Justice claiming damages of CDN$250 million (US$192 million). The lawsuit claims alleged breaches of trust and misappropriation of corporate assets relating to payment of cash bonuses to executives, officers and employees in 2003 and 2004, based on falsely reported financial performance.

Another suit, asking the company to recover damages arising from unlawful conduct by certain directors and officers, and certain former directors and officers, was filed July 30 in the U.S. District Court for the Southern District of New York, the company said last week.

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