Nortel forecasts loss, replaces CEO

Telecommunication equipment maker Nortel Networks on Tuesday gave a grim financial forecast for the current quarter and announced major changes to its business and management, including a new chief executive officer. Citing a reduction in spending by service providers Nortel said it would also lay off about 10,000 employees.

Nortel said the company would replace its president and chief executive officer, John Roth, who announced in April that he would step down from the position. Frank Dunn, Nortel's chief financial officer (CFO) and a director, will replace Roth on Nov. 1 and Roth will remain on the company's board as vice-chairman through the end of 2002.

"We interviewed a large number of outstanding candidates, and at the end of the day . . . we settled on Frank as being the ideal candidate," Roth said in a conference call Tuesday following the announcement.

Terry Hungle, formerly president of finance for Nortel Networks Americas, will replace Dunn as CFO. Nortel will also shift a number of senior managers as it narrows its business to focus on three main areas: Optical long-haul networks, wireless networks and metropolitan networks.

Nortel said in a statement released after the close of the stock market Tuesday that as part of the restructuring it will reduce its work force to about 45,000. Roth said in the conference call that the company currently has approximately 60,000 employees. In its statement, Nortel estimated the adjustment would require about 10,000 layoffs. It will inform the affected employees by Oct. 31.

Nortel will record a charge related to those cuts in the fourth quarter of this year. At the end of 2000, Nortel had about 94,000 employees. Nortel's latest job cuts, announced in June, also eliminated 10,000 positions.

For the third quarter of 2001, Nortel said it expects revenue, excluding charges, to total about US$3.5 billion. Net losses, excluding charges, will come in around $910 million. Analysts polled by research firm Thomson Financial/First Call had expected Nortel to report revenue of about $3.98 billion. The analysts estimated Nortel's loss per share would be $0.21; Nortel did not offer a comparable figure.

Including all special charges, revenue will be only $1.3 billion, far below Nortel's operating income due to costs associated with restructuring and other one-time charges. When taxes and all special charges are taken into consideration, Nortel now expects a net loss of approximately $3.6 billion or $1.13 per share.

Shares of Nortel stock (NYSE: NT) lost $0.18, or 3.29 percent, in trading Tuesday to close at $5.29. The company will report its third-quarter results on Oct. 18.

The company also lowered the quarterly revenue figure it will have to make to break even from $5 billion to $4 billion. Roth said in a conference call following the announcement that the company has managed to lower its break-even point by cutting its operating expenses through layoffs and the sale of certain assets.

"We're well on track with divestment of floor space, facilities and other things," Roth said. In line with cuts to its payroll, Nortel said it will rid itself of the offices where those employees work -- a cut of about 13.3 million square feet of space.

Nortel announced earlier Tuesday another major business divestment that will contribute to Tuesday's restructuring efforts. The company said it would sell nearly all the assets of its Clarify CRM (Customer Resource Management) division to Amdocs Ltd. for approximately US$200 million in cash. Nortel bought Clarify in October 1999 for approximately $2.1 billion.

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