Sliding Nortel Defends Wireless Business

The company cuts second-quarter guidance as customer spending plans remain unclear.

Author:: Scott Moritz
Publish date:: Apr 18, 2002 7:12 PM EDT

Updated from 4:22 p.m. EDT

Nortel

met recently lowered first-quarter financial targets Thursday, but the troubled Canadian telecom gearmaker said customer spending cuts will make for flat results in the second quarter.

The company also plans to trim its workforce by another 3,000 jobs, or 6% of its staff. Nortel has already cut its staff by half from peak 2001 levels, to around 47,000. These ongoing cuts will help to offset an uncertain customer spending picture and help the company cut its revenue break-even point to $3.5 billion.

But as the past 18 months have shown, Nortel has had trouble bringing its costs down low enough to meet falling demand for new networking gear. And with investors increasingly worrying about the spending picture across the telecom industry, Nortel's problems pushed the stock down once again Thursday, leaving it at $4.01.

For the first quarter ended March 31, Nortel lost 14 cents a share on a pro forma basis, excluding certain costs, on revenue of $2.9 billion. Including those costs the loss was 26 cents a share. Nortel had reduced the first-quarter revenue forecast a number of times on the way to that result, as its big customers reel in their spending plans with cash remaining scarce.

On a conference call with analysts, CEO Frank Dunn was asked why he thought quarterly sales could again reach $3.5 billion when the spending trends were coming down so steeply. Dunn said that he wasn't able to put a deadline on it, but that he was seeing an "uptick" in business, including new contracts for wireless and Internet switching products.

Dunn also strongly defended Nortel's wireless business, which has been rumored to be coveted by

Motorola

(MOT)

. "Nortel will be more and more a wireless company," Dunn said. "We are absolutely passionately committed to the wireless business."

One moderately bright spot on the conference call was that the company said it expected to improve its gross margins to 30% or better, signaling that it may not have to cut prices too deeply to make sales.

Nortel said its cash position fell to $3.1 billion at quarter-end from $3.5 billion at the end of 2001. The company recently threatened to draw down a bank credit line as it negotiated a loan rollover with its banks.