Nortel could slash workforce by 10%

Nortel is expected to announce significant job cuts when it reports third quarter results on Monday. That would be on top of the 2,100 jobs that the company said in February it was cutting.

The company is expected to cut 3,000 to 5,000 of its 32,000 jobs, according to analyst estimates and published reports. Nortel declined to comment on the expected layoffs, though if the company does cut back its workforce, it will be just the latest in a long line of vendors doing so of late.

Nortel is beset by disappointing financial results, which is forcing the company to cut costs and further streamline operations, including the sale of its Metro Ethernet Networks (MEN) division.

That division, which went up for sale a couple of months ago, has not sold due to the overall macroeconomic gloom. Analysts say it could portend the sale of more company assets and operations as Nortel looks to focus squarely on fewer potentially high-growth opportunities, like unified communications and VoIP for enterprises.

“Based on industry checks and press reports, we believe Nortel may announce a workforce reduction, possibly amounting to 10% or more of its total workforce, or at least 3,000 employees,” wrote UBS analyst Nikos Theodosopoulos in a bulletin issued this week. “To some degree, further restructuring was implied in the company's long-term planning.”

According to analyst estimates on Thomson Financial, Nortel is expected to announce third-quarter revenues in line with September's downgraded guidance: $2.31 billion, which would be down 14% from last year, and a loss of $0.30 per share.

But UBS says the fourth quarter will fall short of Nortel's expectations, too. The firm is forecasting revenues of $2.57 billion, which would be down 20% from last year.

That would be a 6% decline in full-year 2008 revenue, whereas Nortel forecast to low-single-digit growth from 2007.

UBS says the company is burning through cash too, and its total is expected to be down to $1.3 billion in 2010 from an estimated $2.8 billion at year-end 2008. And while the sale of assets like Metro Ethernet are intended to boost cash, finding takers in the current economic climate will be tough.

“While the MEN business is still an attractive asset given leadership in 40G optical, the desire for companies to preserve cash recently has increased given increased macro-uncertainty,” Theodosopoulos wrote in a bulletin last month. “We lack confidence on timing and value of the potential sale.”

MEN generates $2 billion in annual revenue for Nortel, and UBS is assuming it will be sold for at least $500 million.

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