Updated from 4:23 p.m. EST:

Nortel ( NT) warned Thursday of a sharp earnings and revenue shortfall, saying that the U.S. economic slowdown is "faster and more severe" than it had expected.

The networking equipment company, backing away from hopes of a second-half economic bounceback, also said it didn't expect a significant recovery in the broader economy before the fourth quarter. Nortel stock, which added 20 cents during regular trading to close at $29.75, dropped 16% to $25 in after-hours action on Island.

Nortel forecast a first-quarter operating loss of 4 cents a share on revenue of $6.3 billion. Analysts were expecting the company to earn 16 cents a share on revenue of $8.1 billion, according to numbers quoted by First Call/Thomson Financial.

Nortel also said it would cut an added 4,000 jobs, on top of the 6,000 it has already slashed, by the end of the year in a cost-cutting effort.

The company, which during the second half of 2000 largely resisted the notion that the economy was slowing and that telecom-industry spending was pulling back, said Thursday that "we are now seeing a faster and more severe economic downturn in the U.S. which we now expect will result in a slower overall market growth of approximately 10% in 2001." The company had forecast U.S. market growth of some 30% for the year, though it began to back away from its even-headier growth goals for its key optical networking division last December at its analyst meeting in Boston.

Nortel said that its revised earnings and revenue targets mean it will continue to grow faster than the industry. The company expects earnings to rise 10% for 2001 and revenue to rise 15%. Based on those figures, 2001 earnings should come in at around 81 cents a share on revenue of about $35 billion. The consensus calls for earnings of 96 cents and revenue of $39 billion.

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