Nortel cuts 7,000 jobs

NEW YORK (CNN/Money) -- Canadian telecom provider Nortel Networks cut its revenue guidance due to continued weakness in spending by phone providers, and said it would cut its staff by about 7,000 positions, or one-sixth of its current work force, as a response.

The company said it expects third quarter revenue to be off of second quarter levels by up to 10 percent, rather than its previous guidance of "essentially flat." The company had revenue of 2.77 billion U.S. dollars, and analysts surveyed by earnings tracker First Call were forecasting third quarter revenue of US$2.75 billion. A 10 percent decrease would take revenue down to US$2.49 billion. The company posted revenue of US$3.69 billion in the third quarter of 2001.

"We continue to see reductions in near term spending plans by service providers especially in the United States," said a statement by Nortel CEO Frank Dunn.

The company said it still expects sequential improvement in earnings before special items in both the third and fourth quarters, due to the company's restructuring efforts. First Call's forecast is for a loss per share of 6 cents in the third quarter, following the 9 cent a share loss in the second quarter. The fourth quarter loss per share is forecast to be 3 cents.

While the company said its goal remains to return to profitability by the second quarter next year, analysts expect losses to continue through 2003, and the company not to be break even until the first quarter of 2004, with its next quarterly profit coming in the second quarter of that year.

The company said that further cost cutting efforts are being finalized, but it expects new moves will reduce overall employment to 35,000 from the current staff of 42,000, with the new restructuring to be completed by the end of this year. It said the new cuts would take its break-even cost structure to below US$2.6 billion rather than its previously stated break-even point of US$3.2 billion.

Shares of Nortel (NT) closed down 6 cents to $1.23 in regular-hours New York trading before the announcement.