Nortel Sheds Billions and its CTOBy Sean Michael Kerner
November 11, 2008
When times get tough, they seem to get even tougher for some in the networking sector. Nortel Networks, which was hit particularly hard when the dot-com bubble burst in 2001, is reporting big losses again.
For the third quarter of 2008, the networking provider reported a loss of $3.4 billion on revenues of $2.32 billion, which fell by 14 percent compared to the same time last year. Profit for the same time last year was $27 million.
Part of the decline is because of a $3.2 billion charge that Nortel is taking as a writedown for goodwill and deferred tax assets. In a statement, Nortel CEO Mike Zafirovski argued that the writedown charges have no bearing on Nortel's current cash position.
Nortel plans to shed $400 million in costs from its bottom line by 2009 as a way to stem the red ink, including cutting 1,300 staff positions. The plan is to cut 325 positions immediately and then cut the remainder next year. Among the positions cut is that of CTO John Roese.
"Intellectually, I feel that this is the right thing for Nortel because what the company needs more than anything else at this time is agility to maneuver in a complex market," Roese wrote in a blog post.
Roese argued that by having discrete business units the individual business units would be enabled to make quicker decisions and be more optimized.
"The trade-off will be that the company will lose some of the leverage and efficiency that a more central model provides, but in all decisions there are costs and benefits," Roese stated.
Nortel has been struggling for years with its financial results. The company was hit with an accounting scandal in 2004 that resulted in a $2.5 billion dollar settlement in 2006. Current CEO Zafirovski was brought into Nortel in 2005 to help restore confidence and profitability following the scandal.
Nortel is not however alone in trying to cut costs to fight its way out of this current slowdown. Last week Cisco announced that it would be cutting $1 billion in operating expenses in 2009 in an attempt to ensure profitability.