Susan Taylor
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.
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.
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.
"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.