Nortel could cut up to 5,000 jobs next week: analysts
Nortel Networks Corp could shed between 3,000 and 5,000 jobs when it details its latest restructuring plan next week, analysts said on Tuesday.
The company, North America's biggest maker of telephone gear, said in September that a weak economy and spending cutbacks by the telecom companies that buy its equipment will lead to lower sales. It said these factors will necessitate new job cuts, but it did not specify a number.
Nortel's payroll stands at about 32,000 — down from a peak of more than 90,000 in 2000 before the technology bubble burst.
It announced in February that it would cut 2,100 more jobs, but it was not clear how many of those layoffs have been implemented already.
The Toronto-based company is set to report its third-quarter results on Monday and analysts said it will also likely issue a more detailed update on the latest restructuring.
While Nortel needs to rein in its cost base, it is also limited in the number of workers it can cut at one time, said Ed Snyder, principal analyst at Charter Equity Research.
"You run into structural issues when you cut off too many people at once," he said. "It causes a huge disruption."
Morale suffers and remaining employees could start looking for work elsewhere.
Cut likely 10 per cent
Snyder said he doesn't expect Nortel to cut more than 10 per cent of its workers.
Nortel also said in September it would try to sell its growing Metro Ethernet Networks business, which includes its optical and carrier ethernet technology and accounts for about 14 per cent its revenue.
If a sale is successful, it could let the company move some employees off its payroll without incurring severance costs. Duncan Stewart, president of Duncan Stewart Asset Management in Toronto, said he expects Nortel will trim between 10 per cent and 15 per cent of staff — or roughly 3,000 to 5,000 people — not counting a sale of Metro Ethernet.
"They're still way out in the wilderness," he said. "It's almost impossible to cut your way to growth."
He, too, said that large layoffs send troubling signals to the remaining employees, as well as customers and competitors.
"It's part of what we call the sort of death spiral of continued cuts," he said.
Nortel's name became almost synonymous with massive layoffs in the years following the tech meltdown that began at the start of this decade.
Once a darling of technology investors, the company incurred billions in losses as demand for its products dried up and never recovered.
Nortel's stock hit a record low last week, falling to $1.21 on the Toronto Stock Exchange. It closed Tuesday at $1.47.
In mid-2000, its shares were worth more than $1,100 each, adjusted for a stock consolidation that took place in late 2006.