Nortel job cuts reach 20,000, financial forecast cloudy

Nortel Networks Corp. on Thursday announced that it would lay off an additional 5,000 employees by mid-year amid a first quarter earnings report that met analysts' lowered expectations.

The Brampton, Ontario company said it continues to be hampered by reduced capital spending by service providers and corporations and would not give financial guidance for the company's second quarter that ends in June, or for the full year 2001. In addition, John Roth, Nortel's president and chief executive officer, in a statement said the company would reduce its work force by a total of 20,000 by mid-year, adding 5,000 to the round of layoffs announced in March.

For the first quarter ending March 31, Nortel Networks brought in revenue of US$6.18 billion compared to revenue of $6.32 billion for the same period in 2000, the company said in a statement. The Brampton, Ontario-based company posted a net loss of $385 million or $0.12 a share before unusual items, compared to earnings of $347 million or $0.12 a share during the first quarter 2000.

Financial analysts expected a loss of $0.12 a share, according to a consensus estimate compiled by First Call/Thomson Financial. Analysts expected revenue of $6.1 billion for the quarter, First Call said.

Including acquisition related costs, stock option compensation from acquisitions and one-time gains and charges, Nortel recorded a net loss for the first quarter of $2.58 billion or $0.82 per share, the company said.

Quarterly revenue was hampered by reduced capital spending by service providers and corporations, resulting from tighter capital markets and a severe slowdown in the U.S. economy, Roth said. Nortel saw "significantly lower" sales for the company's Optical Inter-city products, driven by a share reduction in circuit switching, which was nearly offset by growth in sales from Nortel's Optical Metro and Core IP (Internet Protocol) Network products, he said.

The company also saw sales growth in wireless Internet-related products, led by Nortel's IP, personalization and services offerings, he said.

Still, service providers are expected to continue limiting their capital spending, Roth said. The lack of funds from capital markets, high debt levels at many service providers and the effect of the U.S. economic downturn and its adverse impact on other regions will continue to limit their spending, he said. These factors are why Nortel is not providing financial guidance for the next quarter and the full year 2001, he said.

By product, Nortel reported a 2 percent revenue reduction for its network infrastructure segment and a decrease of 22 percent for the photonic components unit. Network Infrastructure revenue reflected growth in wireless Internet products in the U.S., Asia and Canada with a slight decline in Europe, Nortel said. Optical Inter-city products, meanwhile, were down sharply in the U.S., which offset growth in Asia and Europe.

Local Internet products revenue declined substantially in the U.S., although this was nearly offset by growth in other parts of the world, the company said.

By geography, first quarter revenue from the U.S. was down 23 percent compared to the same time last year. Revenue from Canada was down 2 percent, while business grew 38 percent outside the U.S. and Canada, Nortel said.

Nortel warned in mid-February that it would miss its earnings mark for the first quarter and cut 10,000 employees during 2001. In late March, Nortel said it would cut an additional 5,000 employees and cut its earnings forecast for the quarter. Nortel Networks (NT) shares closed up $0.35, or 2.01 percent, to end Thursday's trading at $17.80 a share.

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