Posted on: Saturday, June 16, 2001

Nortel says it will lose $19 billion for quarter

Associated Press

Nortel Networks, with headquarters in Brampton, Ontario, is expected to announce a loss of $19.2 billion for the second quarter. It plans to cut 10,000 more jobs in addition to 20,000 already trimmed. Bloomberg News Service

NEW YORK — Though many of the biggest technology companies fell prey to the dot-com excess, none is more emblematic of the boom-and-bust Internet debacle than Nortel Networks, a headstrong company bloated by acquisitions and now purging a third of its work force.

The Canadian company, a top producer of fiber-optic and other communications equipment, warned yesterday that it expects a whopping second-quarter loss of $19.2 billion, a dire situation requiring 10,000 more job cuts on top of the 20,000 eliminated in recent months.

Not even Motorola or Lucent, for all their well-publicized missteps and financial distress, have found the need for such drastic measures, or at least not yet.

Motorola comes close, with plans to cut 26,000 jobs, but that's from a starting point of 147,000 workers. By contrast, Nortel started the year with 94,500 workers. Likewise, Lucent is trying to cut at least 16,000 positions from a work force of 106,000 people and has offered retirement packages to another 10,000.

The latest explanation for Nortel's troubles touched on most of the major themes that have dominated the meltdown of the technology industry: misguided acquisitions at sky-high prices, overly aggressive expansion, risky lending practices with new customers, and a tendency toward exuberant forecasts.

Notably, in discussing the latest news with industry analysts, Nortel chief executive John Roth acknowledged that customer feedback indicates "an actual decline in Internet traffic for the quarter," a development he blamed on the financial failures of many network operators.

It was a striking admission. Even Nortel's recent profit warnings had maintained a positive spin on the unabating growth of Internet traffic from electronic commerce and Web use.

In a letter to employees, Roth said: "I do not underestimate the toll (the job-cutting) is taking on you and your families, and I want you to be assured that we are doing everything we can to get through this period of alignment as fast as we can."

The company's stock slid to the lowest level in more than two years yesterday, falling 74 cents a share to $9.86 after sinking as low as $8.75 early in the day. The stock has plunged about 90 percent in less than a year, losing more than $300 billion in market value.

Nortel, which also announced that it will halt cash dividend payments on its stock, said its operating units are expected to lose $1.5 billion in the April-June quarter on $4.5 billion on revenues.

But the bulk of this quarter's

red ink comes from a $12.3 billion loss in the market value of acquired companies, most of them purchased for top dollar during the Internet gold rush on Wall Street.

Pointedly, Nortel also announced that it has decided to retreat from a market the company entered only recently through acquisitions — the business of making DSL equipment for high-speed Web service — dumping some of the companies purchased for that purpose.

The reversal, which also involves Nortel's investment in outside ventures seeking to bring high-speed connections to more homes and businesses, will mean a charge of about $2.6 billion to cover costs for the closure and disposal of the various operations.

The second-quarter loss also includes a charge of about $650 million for excess inventory that is expected to grow obsolete before the market turns around, and $300 million for bad debts owed by financially distressed and bankrupt customers.

Nortel, which lost $2.58 billion during the first three months of this year, said the job cuts and other cost-cutting efforts should save $3.5 billion a year.

The quarterly cash dividend payment to stockholders of 1.875 cents per share will be eliminated after the payment due later this month.

¬ On the Web:

Nortel site:

www.nortelnetworks.com