Nortel taps CFO as CEO, cuts more jobs

Nortel Tuesday said it is cutting more jobs, exiting more markets, closing more offices and lowering future revenue targets as it prepares to record a third-quarter loss of $3.6 billion.

The company also named Chief Financial Officer Frank Dunn to replace John Roth as president and CEO after a five-month search. In April, Roth announced his intention to step down by April 2002. Dunn will take the reins on Nov. 1.

For the quarter that ended Sept. 30, Nortel expects to report revenue of $3.5 billion and a net loss of $3.6 billion, which includes charges and other expenses. Excluding the charges, the loss will be $910 million, Nortel stated.

Nortel will cut another 15,000 to 20,000 positions and divest itself of more "noncore" businesses to lower costs in light of further reductions in service provider spending. Nortel's total workforce will number 45,000 after these new cuts.

Nortel Tuesday also announced the sale of its Clarify CRM business, and the sale, divestiture or liquidations of several other "noncore" businesses this year.

The workforce reduction and related charge will be recorded in the fourth quarter of 2001.

"While the magnitude of the market adjustment from previous levels of expenditures has been challenging, we believe we are beginning to see some early signs that the expected capital spending by service providers is approaching sustainable levels," Roth said in a statement. "Early indications of the outcome of the rationalization among service providers are beginning to become apparent, and we have also seen recent announcements of major reductions in telecom spending."

In light of the current levels of expected industry spending, Nortel is adjusting its cost structure to break even on a quarterly revenue level "well below $4 billion," instead of the $5 billion the company was expecting. This new cost structure is expected to be in place in the first quarter of 2002.

Nortel has also whittled down its target growth markets. They now include long-haul optical, metro networking and wireless. Last quarter, IP networking and IP services solutions were two markets included in Nortel's "growth" roundup (Nortel reports $19.4 billion loss in Q2). Now, IP networking and "intelligent service engines" are subsets of the company's metro focus, which also encompasses security, voice-over-packet, and circuit-to-packet systems for service providers and corporations.

Nortel expects to take a restructuring charge of $1.1 billion in the third quarter to complete previously announced workforce reductions, facility closures, product cancellations and a 50% reduction in manufacturing capacity of its photonics components business.

Nortel will announce its third-quarter results on Oct. 18.

Roth, who had served as CEO since October 1997, has agreed to serve as vice-chairman until the end of 2002. In addition to the Dunn and Roth appointments, Nortel announced the creation of the Office of the Chief Executive to facilitate the transition, assist in setting the strategic direction of the company and act in an advisory capacity to the new senior management team.

The Office of the Chief Executive will consist of Executive Chairman of the Board Red Wilson, Dunn and Roth.

Nortel taps CFO as CEO, cuts more jobs

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