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Nortel CEO says downturn continuing

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CIOL Bureau
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Susan Taylor

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OTTAWA: The economic slowdown that prompted Canadian telecoms giant Nortel

Networks Corp. to warn of a deeper than expected loss continues "week by

week" and may have rippled into Europe, Nortel chief executive John Roth

told Reuters on Wednesday.

Nortel, the world's No. 1 telecommunications equipment supplier, said it was

too early to predict a recovery, despite "encouraging signs" that

phone carriers are firming their 2001 spending plans. "Week by week the

downturn continues to proceed - it hasn't stabilized," Roth told Reuters in

an interview.

"We're starting to see a few encouraging signs, but we'd like to see

those encouraging signs extend for several weeks before we call it a trend. And

that's why we're not prepared to issue a formal forecast for the balance of the

year." Nortel on Tuesday told analysts to take a sharper knife to the

company's first quarter forecast, and it abandoned its 2001 estimates amid

uncertainty over customer spending plans.

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In its second major profit warning in six weeks, the company said it now

expects a loss of 10 cents to 12 cents a share for the first quarter,

substantially deeper than its February warning of a 4 cent loss. Nortel also

trimmed its revenue estimates to between $6.1 billion and $6.2 billion from $6.3

billion and Roth said Europe might not be exempt from the slowdown which has

already cut North American spending.

"We're seeing some symptoms of (a downturn in Europe)," he said.

"Whether it goes and proceeds like the US we don't know, but we're

certainly watching it very carefully... We're cautious about Europe at this

time." The warnings sent Nortel shares tumbling as analysts slashed

estimates and stock targets.

The stock shed about 16 per cent to $14.05 on the New York Stock Exchange at

mid-day and to C$22.11 on the Toronto bourse. The shares are now more than 80

per cent off their year high. Nortel, caught in a sector-wide slowdown as phone

carriers and service providers claw back spending, also said on Tuesday it will

cut another 5,000 jobs. That brings staffing reductions to 15,000 employees,

about 16 per cent of Nortel's staff.

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Roth said further cuts could come if the economic downturn continued or

worsened.

Savings from earlier job cuts, of about 10,000 staff, won't show up on

Nortel's balance sheet until the second quarter. Coupled with tightening margins

due to pricing pressures from competitors, that had a heavy impact on the

company's first quarter losses, Roth said.

Analysts say Nortel has recently lost European deals with British Telecom,

360networks Inc., and Verizon to rivals' cheaper bids. Nortel is also the

world's largest supplier of fiber-optic network equipment and Roth said demand

was low for network backbone equipment after a spending boom in 2000. That

slowdown comes as all Nortel customers increasingly delay orders.

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"Customers are pushing out everything possible," said Roth.

"If they don't have to put it in now, why would you bother?" Nortel

said it is now working to weather the slowdown better than its arch rivals

Lucent Technologies and Cisco Systems , which have also issued earnings warnings

in recent weeks.

"What we're looking at is how to make our way through this - making sure

we have a break-even point where we should have it, because it's a little

unpredictable right now," Roth said. He said the company was also ensuring

key new product development is well funded, while older, lower-profit product

lines are reviewed.

Nortel is uncertain it will provide second quarter guidance when it reports

its results on April 19, and Roth said a full-year forecast is unlikely at that

time. "This is moving very, very rapidly," Roth said. "I wouldn't

apologize for the kind of forecast we give."

(C) Reuters Limited 2001.

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