Nortel to Cut Another 3,500 Jobs, May Sell Optical-Parts Unit

Nortel now expects its work force to bottom out at 42,000. Last month, Nortel put the figure at 44,000. The Brampton, Ontario-based company has cut about 50,000 jobs since the beginning of last year, and employed 47,000 people at the end of the first quarter.

Nortel says it plans to streamline the optical long-haul business because it doesn't expect a "meaningful" recovery in that market before late 2003 or early 2004. The plan includes the possible sale or resizing of Nortel's optical-components business.

"We are aligning our optical business model to where we see the industry going to ensure we are well-positioned when spending resumes," president and CEO Frank Dunn says.

"Optical backbone networks are the foundation of multimedia broadband networks and we expect Nortel Networks to remain an industry-leading provider of end-to-end optical networking solutions," Dunn says.

The latest job cuts will result in charges of about $600 million, mainly in the second and third quarters. These charges are in addition to the expected second-quarter charge of about $150 million for previous job cuts.

Nortel now expects second-quarter revenue to be flat to down 5 percent from the $2.91 billion reported in the first quarter. Just last month, Nortel said it didn't expect a significant change in sequential revenue growth.

However, Nortel expects sequential improvement in the pro forma loss from continuing operations from the 14 cents a share reported in the first quarter.

The pro forma figure won't include acquisition-related costs, charges, stock-option compensation from acquisitions and divestitures, a gain or loss on the sale of businesses, gains associated with certain investment sales and any associated items included in the income or loss of equity accounted for as investments.

Nortel, which had annual revenue of $17.51 billion last year, maintains its long-held goal of having a break-even cost structure in place by the fourth quarter. But with the latest realignment, the company cut the fourth-quarter revenue target to $3.2 billion from $3.5 billion.

Nortel says it is considering more opportunities to raise capital to strengthen its balance sheet and liquidity, which may include an equity-based financing transaction. A company spokesman said that at the end of the first quarter Nortel had $3.1 billion cash and $4.8 billion debt.

Nortel says it has sufficient liquidity to fund the realignment actions and operations and expects to be in compliance with its covenants under various bank facilities.

Nortel expects the overhaul of the optical long-haul business to be completed by the end of the third quarter.

In Wednesday morning trading, shares of Nortel climbed 11 cents, or 4.4 percent, to $2.63 on the New York Stock Exchange.

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