Service Provider Networks / (none) / View from the Edge:

More cuts at Nortel

Optical realignment to cost 3,500 jobs; components business may be sold

By Jim Duffy
The Edge, 06/05/02

The tough times just don't seem to end at Nortel.

Last week, the beleaguered telecom giant announced it is cutting 3,500 more positions as a result of restructuring its long-haul optical business, which has been hit hardest during the industry downturn. Optical long-haul was down 77% in the first quarter of 2002 compared to the first quarter of 2001.

Nortel said it does not expect a meaningful recovery in the long-haul optical market before late 2003/early 2004.

"Nortel is still on a downward spiral of cutbacks, layoffs and declining revenue, which may lead Nortel to becoming a casualty of industry consolidation," says Bill Lesieur, director of Technology Business Research in Hampton, N.H. "Nortel bet the business on long-haul optical and won big in 1999 and 2000, but the market subsequently collapsed, which thrust Nortel into a downward spiral of cutbacks, layoffs and declining revenue."

The company plans to focus on optical switching - embodied in its OPTera HDX/DX products - photonic transport capabilities and network management. This may include selling and/or "resizing" Nortel's optical components business.

Sign up for Jim Duffy's "View from The Edge" newsletter and get this column sent to your inbox each week.

The realignment of the optical long-haul business, including optical components, is expected to be completed by the end of the third quarter of 2002. At that time, Nortel expects its workforce to number 42,000, down from April's previous headcount target estimate of 44,000.

The realignment will force Nortel to record charges of approximately $600 million, the majority of which will be taken in the second and third quarters of 2002. The company said it now expects revenue in the second quarter of 2002 to be flat to down 5% compared to the first quarter of 2002, updating its previous sequential revenue guidance of "not significantly up or down."