Nortel considers new round of layoffs and spending cuts
Executives at Nortel Networks Corp. said Wednesday significant pressures are forcing the firm to look at a new round of layoffs, spending cuts and restructuring. The company is also considering selling metro ethernet, one of its most successful divisions, which employs 1,100 people -- the majority of whom work in Ottawa.
"Given our predicted financial results and our current balance sheet in a tough economic environment, we clearly understand the status quo is not an option for Nortel," chief executive Mike Zafirovski said during a conference call on Wednesday.
Nortel's stock price fell by more than 50 per cent after Zafirovski said it was time to review the company and take "immediate and decisive action."
"As part of the review, planning is underway for further restructuring and other cost-reduction initiatives," he said.
For Ottawa, it's likely more than 500 people will be laid off or become part of Nortel's announced intention to sell one of its divisions.
Many Nortel employees who headed into work Wednesday said they've been hardened by previous cutbacks and told CTV Ottawa they weren't surprised by the news. Others, however, were taken aback by the proposed cutbacks.
The announcement also comes as a hard hit for those trying to develop the capital's economic base, as they continue to see the company -- which was once the largest employer in the city -- get battered.
"They're a resilient organization. We've seen them over the past, they've been able to persevere through this but we certainly don't like to see our bell-weather company here in Ottawa, and probably the number one company in research and development in Canada, having this type of trouble," Jefferey Dale, president of the Ottawa Centre for Research and Innovation told CTV Ottawa.
Not much of a surprise
Others suggested the company's latest announcement doesn't come as much of a surprise because other telecom giants have been talking about the developing troubles.
Last week, fellow U.S. telecom Ciena Corp. pulled back its fourth-quarter revenue estimates as its chief executive Gary Smith warned of a lengthening sales cycle at companies it sells to like AT&T and Verizon.
"We knew the global economy was weakening and we also knew spending was slowing," said Duncan Stewart, president of Duncan Stewart Asset Management.
Nortel "is a company in the midst of a turnaround, and it's a really bad time to hit a period of economic and carrier weakness," he said.
Nortel has struggled for years to get out from under bad bookkeeping and old product lines, shedding thousands of jobs and moving thousands of others overseas where labour is much cheaper.
Shares in the company were down $2.44 to $3.28 on the TSX Wednesday after plunging as low as $3, down from a 52-week high of $18.96.
The new low for Nortel stock is equivalent to 30 cents on a pre-consolidation basis, compared with its peak of $124.50 during the turn-of-the-millennium technology bubble.
The company is starting an immediate review of operations and hopes to have more details in the near future.
With a report from CTV Ottawa's Paul Brent and files from The Canadian Press