Stock hits new low as Nortel cuts more jobs, loses more billions

Nortel 3-month TSX chart

Telecom company Nortel Networks Corp. is cutting jobs again, this time eliminating 1,300 positions over the rest of this year and into 2009.

The company disclosed the cuts Monday as it reported a third-quarter loss of $3.41 billion US. The worldwide company has not reported where the cuts will take place.

Its share price hit a record low of $1.08 on the Toronto Stock Exchange before closing at $1.11, down 38 cents for the day. The stock, which traded for as much as $124.50 at its July 2000 peak, was consolidated one-for-10 in 2006, which makes the current price equivalent to about 11 cents on the old scale.

The firm's sales dropped 14 per cent year-over-year to $2.32 billion, including a 24 per cent drop in revenues at its carrier networks division.

"In September, we signalled our view that a slowdown in the market was taking place," said Nortel president and CEO Mike Zafirovski.

"In the weeks since, we have seen worsening economic conditions, together with extreme volatility in the financial, foreign exchange and credit markets globally, further impacting the industry, Nortel and its customers. We are therefore taking further decisive actions in an environment of decreased visibility and customer spending levels," he said.

In addition to eliminating jobs, the company said it plans to shift approximately 200 more positions from higher-cost to lower-cost locations.

The company expects the cuts will result in annual gross savings of approximately $190 million US, with total charges to earnings and cash outlays of approximately $130 million.

Monday's job cuts are the latest in a long string of reductions that has seen Nortel reduce its workforce from more than 100,000 staff to about 31,000.

Nortel also said Monday it will freeze salaries and extend its existing hiring freeze through 2009. The company will make deeper cuts to spending, including travel.

Taking look at real estate

Nortel also plans to re-evaluate all of its real estate holdings, and reduce or eliminate its spending on consultants and other professionals.

The company's board of directors also decided to suspend dividend payouts on the firm's Series 5 and Series 7 preferred shares.

Finally, Nortel offered up a weakened outlook for its full-year financial results. The company said it now expects 2008 revenues to be off by around four per cent from 2007 results. Its previous forecast was a drop in the range of two to four per cent.

The company also cut its 2008 management operating margin to improve by 1.25 percentage points compared to 2007, versus its earlier forecast of an improvement of between 1.25 and 1.75 percentage points.