Nortel Networks issued a key status update, including preliminary results for Q1 and Q2 of 2004, and plans for a 10% workforce reduction resulting in the loss of 3,500 jobs over the next four months. The workforce reduction is expected to be substantially completed by year-end and will lead to reorganization costs of approximately US$300 million to US$400 million. The company is targeting annualized cost savings of approximately US$450 million to US$500 million once the reductions have been implemented.
Regarding the ongoing investigation in financial irregularities, the company said seven more executives have been terminated "for cause," bring the total number of executives dismissed as a result of the scandal to 10. Nortel Networks is seeking to re-coup the bonuses paid to these executives. The independent review is expected to be completed in September.
Looking ahead, Nortel Networks is undertaking a major reorganization. A key emphasis of the corporate strategy will be on converged networks. The company said it believes significant opportunities for growth exist across the marketplace and particularly in emerging markets such as China and India as customers evolve their networks to high performance converged networks underpinned by high security and reliability. Nortel Networks will have two main divisions: a carrier focused organization and an enterprise focused organization.
The company has appointed a new chief strategy officer to drive partnerships, new markets and acquisitions. Nortel Networks will emphasize partnerships and alliance more heavily going forward. It will name a chief marketing officer to drive overall marketing strategy. The company acknowledged that marketing has been weak in the past, but will be reinvigorated to promote the company's products and positions. Nortel Networks will also undertake a strategic review of embedded services to assess opportunities in professional services business; and it will put a distinct focus on government and defense customer segments. The company will also appoint a VP of Ethics, reporting to the CEO and Board of Directors.
Some other highlights of the status update:
- Estimated unaudited revenues for the first six months of 2004 were approximately US$5.1 billion, with approximately US$2.5 billion in the first quarter and US$2.6 billion in the second quarter.
- Estimated unaudited net earnings per share in the first half of 2004 were US$0.00 to US$0.02, with US$0.00 to US$0.01 in the first quarter and US$0.00 to US$0.01 in the second quarter, in each case on a fully diluted basis.
- Gross margin for the first six months of 2004 is estimated at approximately US$2.2 billion, or approximately 43% of revenues, with approximately US$1.1 billion in each of the first and second quarters. Margins in the second quarter reflect lower margins related to initial wireless deployments and the mix of wireless revenues in the quarter.
