Nortel Networks set a dismal tone for North American investors when it announced late last week that it expects to make a loss in its first quarter because "it is seeing a faster and more severe economic downturn" than expected in the US . Its proposed cure is to sack 10,000 employees. The warning came less than a month after Nortel had confirmed earlier projections while releasing its fourth quarter financial results. The workforce reduction plan came on the back of a statement issued last month in which the company said it planned to sack 4000 employees but to hire an equal number in different areas.
Investors did not take kindly to the news, which not only sent the company's stock price plummeting, but also inspired at least three separate class action law suits alleging Nortel had misled shareholders. The suits may be indicative of disgruntled investor sentiment, but they are given little chance of success by observers in the US.
Although it had previously warned the market that its fourth quarter profit would not be up to scratch, when it came to the crunch last week Dell described its fourth quarter performance as "strong", largely because of a 63 per cent increase in server shipments. Before accounting for a $US105 charge primarily related to job cuts, net profit rose 16 per cent from $US436 million to $US508 million, and reported net profit was $US434 million. Revenue jumped 28 per cent from $US6.8 billion to $US8.7 billion. Aware that the results were not as good as the market would have liked, Dell has announced plans for the first retrenchments in its history, which will involve 1700 workers, equivalent to four per cent of its workforce.
No such troubles at Hewlett-Packard which, after warning of soft times, lifted first quarter revenue two per cent from $US11.7 billion to $US11.9 billion. Net profit slipped from $US794 million in the previous first quarter to $US328 million. "Clearly, this was a tough quarter and our results reflect that," said Carly Fiorina, HP's CEO. Continued deterioration in the US economy, and related weakness in consumer and business IT spending, contributed to a sales slowdown in North America with revenues declining by six per cent year over year. More specifically, difficult US market conditions impacted our consumer and commercial desktop PC business and our printer hardware business," she said.
Novell too managed to keep its investors happy by exceeding earnings per share forecasts in its first quarter, even though revenue slipped from $US316 million to $US245 million. Despite keeping analysts happy, the company lost $US7.8 million, which did not compare favourably with a net profit of $US44.8 a year earlier.