Nortel Hoists the Ax Again

It cuts 2,900 jobs, but Wall Street applauds solid revenue numbers.
Author:
Publish date:

Nortel (NT) CEO Mike Zafirovski is swinging the ax again, cutting 2,900 workers in a bid to focus on growth.

But Nortel shares rose early Wednesday after the company said its fourth quarter will show stable gross margins and revenue in line with the Wall Street analysts' consensus estimate.

This is the second staff cut under a business transformation plan initiated by Zafirovski, a hard-charging executive who took over the stumbling telecom-equipment maker a year and a half ago. It's also the third round of firings at Nortel in as many years.

"These are tough but necessary measures," Zafirovski said in a press release Wednesday. In addition to the layoffs, Nortel plans to move 1,000 jobs overseas to help lower costs.

"We are transforming Nortel, and are focused on building a highly competitive organization that drives innovation and profitable growth," Zafirovski continued in the press release.

The news comes a day after finance chief Peter Currie announced he was leaving the company for the third time, effective in April.

Nortel has struggled a bit of late. Soon after the telecom industry collapse earlier this decade, Nortel seemed to land on its feet with a surprisingly quick return to profit. But as luck would have it, the books had been cooked in part of an

executive bonus scandal.

Later, after two restatements, the books appeared to be clean. But a follow-up review uncovered yet another set of accounting blunders, which led to a third restatement, taking the total adjustment tally to $4 billion.

The internal distractions due to the accounting mess effectively kept Nortel out of the broader consolidation trend that swept through the industry as sales fell. Rivals merged, creating bigger players like

Alcatel-Lucent

(ALU)

.

Ericsson

(ERIC) - Get Report

acquired Marconi and then set plans to gobble up

Redback

(RBAK)

. And

Nokia

(NOK) - Get Report

bought the wireless infrastructure unit of

Siemens

(SI) - Get Report

, leaving Nortel out on its own.

Zafirovski, a former

Motorola

(MOT)

executive, was hired in November 2005 to turn the gearmaker around. Within days, he replaced two top Nortel executives. In May, the Canadian tech shop said it was cutting 1,100 people to "flatten the organization and shift to a culture marked by agility and accountability."

In September 2004, Nortel announced it was cutting 3,250 workers, or 10% of its staff.

Nortel estimates that it had $3.26 billion in sales during the fourth quarter, which is roughly in line with analysts' expectations. And the company says gross margins were a little above 40%, which is slightly better than the 39.4% margins in the year-ago period.

Nortel expects to release its fourth-quarter financial report during the week of Feb. 19. Zafirovski says there were signs of improvement in the quarter.

"I am pleased with the progress made in 2006, and with the strong performance Nortel delivered toward the end of the year," Zafirovski said in the press release. "Nortel is committed to our short- and long-term plans, and we are beginning to see the desired results."

Nortel shares rose 99 cents, or 4%, to $26.92 in early trading Wednesday.