Canada's Nortel Networks last week announced details of a three-year restructuring program under which it is divesting a large part of its manufacturing operations.
The restructuring, started at the beginning of this year, will save Nortel between $US250 and $350 million annually over three years, Nortel officials said. It will also mean cutting some 1000 company jobs worldwide, and outplacing with contract manufacturers another 3000 employees who work at facilities that Nortel plans to divest, the company said.
The moves are part of the Ontario-based manufacturer's shift in focus from telecommunications equipment to software technology and data-networking products. Like other traditional, telecomm equipment suppliers, Nortel has begun concentrating on the market for converged voice and data networking products, particularly with its $9.1 billion purchase last year of data networking vendor Bay Networks.
Nortel will shift away from making its products in-house to outsourcing a large portion of its manufacturing needs to contract manufacturers, the company said. It plans to divest its electromechanical subsystems manufacturing, its repair business, and nearly all of its printed circuit-board assembly. This will let Nortel focus on skills that are not easily found outside the company, Nortel said.
However, if suitable buyers cannot be found for these operations, Nortel will explore other options, including closing some sites.
Nortel also plans to replace traditional manufacturing facilities with a network of what it calls "systems houses" worldwide. These facilities will link customers, design centres, internal manufacturing, suppliers, contract manufacturers, and other parts of the manufacturing process, Nortel said, and will be responsible for quality control, customer delivery and introducing new products.
Nortel could not be reached for direct comment to elaborate on these changes.
All of Nortel Networks' product units will be able to use the network of seven systems houses. The seven locations are: St Laurent (Quebec) and Calgary (Alberta) in Canada; Raleigh (North Carolina) and Billerica (Massachusetts) in the United States; Monkstown in Northern Ireland; Galway in Ireland, and Chateaudun in France. Work currently being done at several locations will be realigned with this network of systems houses, Nortel said.
The moves will have no significant impact on the company's 1999 financial performance from outgoing operations, Nortel said. Nortel Networks had 1998 revenues of $17.6 billion and has about 75,000 employees worldwide.