Nortel in huge 2Q warning

June 15, 2001 Posted: 1639 GMT

NEW YORK (CNNfn) -- Nortel Networks Corp. said Friday it will cut another 10,000 jobs and warned it expects a second-quarter loss of $19.2 billion, much wider than Wall Street had forecast, due to sluggish sales of telecommunications gear.

Toronto-based Nortel, one of the biggest makers of optical equipment for telecommunications networks, also eliminated its common stock dividend in a bid to save cash and said it will stop producing equipment for the high-speed DSL Internet access market. Nortel shares tumbled $1.50 to $9.10 in morning trading.

		VIDEO
	CNNfn's Chris Huntington takes a look at Nortel's decline in sales. Real 28K 80K Windows Media 28K 80K

The company said it expects sales of $4.5 billion for the quarter, well below Wall Street forecasts of $6.2 billion and sales of $7.8 billion a year earlier.

Nortel (NT: down $1.39 to $9.21, Research, Estimates) now expects a second-quarter loss of 48 cents a share excluding one-time items versus the 6 cents-a-share loss forecast of analysts surveyed by earnings tracker First Call.

"Obviously cash conservation is a No. 1 priority as we make sure we get our cost structure in line in this period of very low revenue," CEO John Roth told CNNfn's Before Hours Friday. "This is an absolute surprise. We've never seen a downturn this rapid." (284K WAV) (284K AIFF)

Nortel's woes mirror those of other telecom equipment makers such as JDS Uniphase (JDSU: down $1.71 to $12.10, Research, Estimates), which warned Thursday that it now faces a fourth-quarter loss instead of a profit as forecast by analysts, and Lucent Technologies (LU: down $0.47 to $6.28, Research, Estimates).

Roth blamed Nortel's problems on a significant slowdown in sales to telecom service providers, which have also been struggling with the slowing economy and a shrinking long-distance telephone market. "Customers are very reluctant to buy things they don't need," he said. "They've got their own issues with the softening of the economy and they're doing what's responsible for their shareholders."

Nortel, which will take a $12.3 billion charge in the second quarter to write off the value of intangible assets on its books, said the 10,000 job cuts are in addition to 20,000 cuts announced in April. The reductions should be completed by the end of September.

The company said it expects to save $3.5 billion a year from the job cuts and other cost-cutting measures.

During a conference call with analysts, Nortel Chief Financial Officer Frank Dunn said quitting the DSL equipment business will eliminate 8.8 million square feet of manufacturing space and account for a big chunk of its anticipated savings.  DSL, or digital subscriber lines, can provide speedier Internet access for consumers and businesses, but they are not yet widely available.

Dunn said he expects Nortel's "cash flow" – usually defined as earnings excluding one-time items as well as depreciation and other costs -- to become positive in the first half of 2002.

The company also said it won $2 billion in financing to put its restructuring plan into action over the next 18 months.

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