Nortel posts huge loss, sets further cost cuts

By Wojtek Dabrowski

TORONTO (Reuters) - Nortel Networks Corp reported a $3.4 billion quarterly loss on Monday and announced a round of sweeping new cost cuts, including 1,300 layoffs, as a global economic downturn erodes its business and strains its balance sheet.

The economic downturn also forced Nortel, North America's biggest maker of telephone gear, to cut its 2008 outlook again, as telecommunications customers reduce spending on equipment. The news pushed Nortel's stock, once valued at more than C$1,100 a share, down another 18 percent to C$1.22.

The new job cuts represent about 5 percent of Nortel's roughly 30,000-strong workforce. The company said it would also freeze salary increases, cut back on consultants and review its entire real-estate portfolio.

The moves are Nortel's latest response to a rapid deterioration of the business environment that the company had highlighted earlier this fall, Chief Executive Mike Zafirovski said during a conference call.

"I can assure you that the sense of urgency which we had in mid-September has only accelerated these last two months," he said. "This is a critical time for Nortel."

Several senior executives will leave the company early next year as the company streamlines its operations, he said.

The company said the latest cost-cutting, along with the moves announced earlier, will lead to annual savings of about $400 million in 2009.

But the new moves will also mean total charges to earnings and cash outlays of about $130 million.

The cost cuts notwithstanding, Nortel's balance sheet and its business setbacks make the company attractive only to investors who betting that it will be broken up or sold, said Duncan Stewart, president of Duncan Stewart Asset Management in Toronto.

"It only exists as a possible speculative break-up value play," he said. "As Nortel exists today, it cannot become a successful global leader in the telecom equipment industry."

The Toronto-based company posted a third-quarter loss of $3.4 billion, or $6.85 per share, compared with a year-earlier profit of $27 million, or 5 cents a share.

The loss included a tax adjustment of $2.07 billion and a $1.14 billion writedown of goodwill.

In September, the company said 2008 revenue would fall between 2 percent and 4 percent. Now, just two months later, Nortel said the decline would be at the high end of that range.

"In light of the economic and market conditions ... Nortel continues to experience significant pressure on its business and the deterioration of its cash and liquidity," the company said.

In the latest quarter, revenue fell to $2.3 billion from $2.7 billion, in line with analyst expectations, according to Reuters Estimates.