Nortel to cut pensions and jobs in search of profit

Nortel Tuesday announced it will cut 1,100 jobs worldwide and trim its North American pension plans in a move to cut costs and return the company to profitability.

The changes are part of an ongoing plan to improve the operating margins at the network equipment vendor by more than $1.5 billion in 2008.

About 1,200 jobs will be lost through the consolidation of more than 100 operations centers around the world into fewer sites. The centers deliver engineering, product and technical support, order management and other services. At the same time, Nortel will open two operations centers in Mexico and Turkey, creating about 800 new jobs at those facilities by 2008.

Other job cuts include the elimination of 350 middle management jobs, and a further 350 positions worldwide, Nortel said. The changes will flatten the organization and improve "agility and accountability," it said.

Nortel will cut 1,900 jobs altogether, some through attrition, and create 800 new jobs, for a net reduction of 1,100 positions.

In a shake-up to its pension plans, starting on Jan. 1, 2008, Nortel will move workers currently in defined benefit plans to contribution retirement programs. Other changes include the elimination of post-retirement healthcare benefits for workers who are not 50 years of age with five years of service as of July 1, 2006.

Those changes will save the company $100 million in pension expenses starting in 2008 and more than $400 million in cash by 2012, Nortel said.

The Brampton, Ontario, telecommunications equipment maker was rocked by an accounting scandal in 2003 that resulted in top executives being fired, years of financial results being restated and shareholder lawsuits. This past March the company announced another set of adjustments, this time to its revenue reports for 2003, 2004 and part of 2005.

Earlier this month it reported a loss of $167 million, or $0.04 per share, for its fiscal first quarter, wider than its loss of $104 million, or $0.02 per share, in the same quarter a year earlier. Revenue totalled $2.38 billion, roughly the same as the previous year.

Mike Zafirovski, the former Motorola executive who took over Nortel last October as president and CEO, has pledged to turn the company's fortunes around by 2008.

The IDG News Service is a Network World affiliate.