Nortel to focus R&D on WiMAX, CDMA following layoffs

In announcing Wednesday that it is laying off 2,900 more people, Nortel Networks executives tried to portray the move as a part of a business transformation plan announced last year.

However, one industry analyst was dismayed at the news, saying it is evidence that the Canadian telecommunications equipment maker has lost its way.

“This is the third round of cuts in three years,” said Kevin Rostivo of the SeaBoard Group. “It says Nortel hasn’t turned the corner — I’m not even sure the corner is in sight.”

Nortel president and CEO Mike Zafirovski said the cuts from Nortel’s staff of just under 34,000 are on top of the loss of 1,100 positions last year.

In addition, Nortel will shift 1,000 positions to lower-cost countries including China, India and Mexico.

He said they are necessary to help the once huge company remain competitive.

About 70 per cent of the 2,900 losing their jobs will be gone by the end of this year, with a projected savings of $400 million a year when finished, although there will be costs — mostly this year — of $390 million.

Arguably the good news for the company’s partners and customers is that none of the cuts will come from sales or marketing departments, but will be in general and administration areas.

On the other hand, spending on research and development will drop from 17 per cent of revenue to 15 per cent. Zafirovski said the spending will be concentrated on “highly competitive” areas such as WiMax and CDMA.

In a news conference for reporters and analysts, Zafirovski emphasized how much ground the company has made up recently.

Fourth quarter revenues — to be detailed later this month along with the full financial year results —  are expected to be about $3.26 billion, up eight per cent of the same quarter in 2005, and gross margins slightly above 40 per cent of revenue.

“I believe we made tremendous progress in 2006,” Zafirovski said, “and we are as strong today as we have been in a number of years. Re-statements (of financials) are behind us, the class action lawsuits have been settled, we created new growth areas like metro Ethernet networks and services, [made] very significant commitment to WiMax, a very serious commitment to transform the enterprise, our alliance with Microsoft, the Verizon US$2 billion order and very exciting deals on the enterprise side.”

But if things were so good, Restivo said, there would be no need to cut jobs.

He also noted that vice-president and chief financial officer Peter Currie resigned the day before the cuts were announced, effective April 30.

In announcing his departure, Currie said in a news release: “I believe that I have achieved at Nortel what I returned to accomplish. We have transformed the finance organization, significantly strengthened internal controls, and improved the balance sheet.”

If the company is thriving, asked Restivo, why isn’t Currie staying?

“The company’s still very much in transition,” he concluded.

Howver, IDC Canada telecom analyst Lawrence Surtees was more positive, saying the layoffs were mixed news. “It;s short-term pain for hopefully long-term gain.

“Restrucuring isn’t great news anytime, but Mike Zafirovski and his team indicated in the fall this would be happening.” Layoffs are a permanent feature of the telecom manufacturing industry, he said.

Some of Nortel’s competitors have faced problems with acquisitions and mergers, which Nortel hasn’t been able to engage in, Surtees said — although Zafirovski said in his press conference that he’s open to an acquisition.

The company has US$3.5 billion in cash.

“Today;s news disguises or overtakes the context that if people pull up remarks in the [Nortel] investor day conference in fall, Mike was pretty clear that that while they said they would eliminate some jobs they would simultaneously be creating some positions new product areas,” said Surtees, “and people tend to forget that.”

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Howard Solomon
Howard Solomon
Currently a freelance writer. Former editor of and Computing Canada. An IT journalist since 1997, Howard has written for several of ITWC's sister publications, including Before arriving at ITWC he served as a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times.

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