Nortel warns of troubled waters (again), investors jump ship

The value of Nortel Networks Corp.’s stock was cut in half after the company announced a restructuring, including plans to sell off its Metro Ethernet Networks business and “mitigate the risks” in its LTE, 4G effort. Market watchers took the language to indicate hopes for a potential teaming with another wireless infrastructure company.
The news coincided with a preview of Nortel’s third quarter; the company expects revenues of about $2.3 billion and gross margin of 39%, numbers down from previous expectations. Nortel blamed the drop on the “sustained and expanding” economic downturn as well as “product delivery delays.”
The news is just the latest in a long string of troubling issues at the company. Nortel suffered years of financial difficulties following the tech blowout at the turn of the century. Although things had seemed to turn a corner with the addition of CEO Mike Zafirovski, a mix of sluggish spending and wider, macro-economic troubles have served to pull the company back to the edge.
Nortel’s stock dropped from around $5 per share to around $2.50 per share after the company’s restructuring announcement earlier this week.
“It is clear that the business environment in which we operate requires additional immediate and decisive actions,” Zafirovski said. “A comprehensive review of our business is taking place and we are determined to reshape the company to maximize its competitiveness, drive a significant increase in effectiveness and efficiency company-wide, and re-focus to establish a clear path for growth, profitability and renewed shareholder value.”
Nortel plans to conduct “further restructuring and other cost reduction initiatives,” likely in the form of further job cuts. Nortel currently counts around 32,000 employees, down from a high of 90,000 in 2000, according to Reuters.
The company also hinted at plans for its wireless infrastructure business, using business jargon typically associated with joint ventures or partnerships. Such a move would follow Nortel’s modus operandi; the company in June offloaded its WiMAX business to Alvarion in order to focus on the LTE market.
Indeed, the wireless infrastructure landscape is saturated with such teamings, as evidenced by the mergers of Alcatel and Lucent and Nokia’s and Siemens’ equipment operations.
Finally, Nortel also announced its intention to “explore a divestiture” of its Metro Ethernet Networks business, which includes optical and Carrier Ethernet portfolios.
Nortel said the moves should help to strengthen its balance sheet, provide funds for the restructuring, as well as fund for potential investments in its Enterprise business.