Today's news out of Nortel was that the company's much-anticipated layoffs will be much smaller than many analysts had predicted: Nortel is eliminating 1,300 positions, far fewer than the 5,000 that some were anticipating. But the news was still bad overall: A $3.4 billion loss for the quarter.CEO Mike Zafirovski said in the company statement:
In September, we signaled our view that a slowdown in the market was taking place. In the weeks since, we have seen worsening economic conditions, together with extreme volatility in the financial, foreign exchange and credit markets globally, further impacting the industry, Nortel and its customers.
Among those leaving Nortel will be four top executives: Chief Marketing Officer Lauren Flaherty, Chief Technology Officer John Roese, Global Services President Dietmar Wendt and Executive Vice President Global Sales Bill Nelson.
Along with other cost-cutting measures, Nortel hopes to save $400 million with the moves. The company also announced a reorganization into two business units, for the Carrier and Enterprise segments. The Enterprise business unit will be led by current Enterprise head Joel Hackney.
The company's enterprise voice and data businesses both declined this quarter. Revenues from enterprise voice products fell from $426 million in 3Q07 to $422 million in 3Q08, though that figure represented a quarter-over-quarter increase from $416 million in 2Q08. The company's enterprise data networking business fell from $245 million in 3Q07 to $194 million in 3Q08.
Other details from the overall report:
* Revenue in the third quarter of $2.32 billion decreased 14 percent year over year and down 1 percent on a year-to-date basis. The decline compared to the year ago quarter resulted from a challenging economic environment, competitive pressures and reduced spending by key carrier customers. * Gross margin in the third quarter of 39.2 percent decreased over the prior year period primarily due to unfavourable product mix.
* Operating expenses, comprised of selling, general and administrative expenses and research and development expenses, declined by $138 million compared to the same quarter last year and declined by $125 million compared to the previous quarter, and $136 million year-to-date.
* Management operating margin(a) in the third quarter of 0.7 percent decreased over the prior year period by 424 basis points.
* Cash balance, as at September 30, 2008, of $2.30 billion. The cash balance reflects a re-classification of $362 million from cash and cash equivalents to short and long term investments.
* Operating expenses, comprised of selling, general and administrative expenses and research and development expenses, declined by $138 million compared to the same quarter last year and declined by $125 million compared to the previous quarter, and $136 million year-to-date.
* Management operating margin(a) in the third quarter of 0.7 percent decreased over the prior year period by 424 basis points.
* Cash balance, as at September 30, 2008, of $2.30 billion. The cash balance reflects a re-classification of $362 million from cash and cash equivalents to short and long term investments.
Nortel is definitely facing critical challenges, especially if economic conditions worsen even more. They're certainly not the only vendor in the enterprise voice marketplace with such concerns, but theirs is probably the greatest challenge, and they're probably the largest so-challenged vendor in terms of installed base. Zafirovski pointed in the company's earnings announcement to the current "environment of decreased visibility and customer spending levels." That was definitely an understatement.
