Nortel crashes on sharply downgraded projections

Canadian telecommunications giant says that its revised estimates for 2001 show that an expected increase in customer purchases in Q2 will not happen, and that earnings will suffer. 10,000 jobs to be cut.

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By  Colin Browne Published  February 16, 2001

Nortel Networks is to hack its workforce by 10,000 in the face of what it sees as a fundamentally stalled market in North America for telecommunications hardware. The company, a strong player in the optical networking space, says that the severe economic downturn in the United States will cause the overall market to slow by 10% this year. Nortel expects the slowdown to continue into fourth quarter.

That warning brought the Wall Street to its knees this morning, as all the gains of the previous day—in which networking stocks appeared at last to be gaining ground—to be wiped out.

Nortel says that it expects to report $6.3 billion in first-quarter revenue and an operational loss of 4 cents a diluted share in 2001.

News of the warning caused Nortel shares to plunge, falling by $6.70 to $23 in after-hours trading on Thursday, a drop that has continued throughout this morning. At the time of posting this story, Nortel was off nearly 36%.

“We are seeing longer than expected delays in spending by our U.S. customers as they continue to assess the impact of the economic and market conditions on their businesses,” said Nortel CEO John Roth.

Growth in Europe and in Asia Pacific and Latin America offset the declines, Nortel said.

In January, Nortel announced that it would lay off about 4,000 full-time employees in the near term but expected to finish 2001 with the same number of employees it had last year. Nortel now expects to cut 10,000 employees through streamlining and realignment activities.

Last month, Nortel projected revenue and earnings per share to each grow by 30%. The telecom equipment provider now anticipates revenue in 2001 to grow by 15% and earnings per share to increase by 10%.

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