Canadian telecom giant Nortel Networks on Friday announced it will have a record loss of US$19.2 billion in the second quarter and must cut an additional 10,000 jobs, stinging tech-wary investors and shaking markets worldwide.
The Brampton, Ontario-based firm said it expects a second-quarter loss of US$19.2 billion from operations and the impact of its ongoing restructuring. Market watchers are calling it corporate Canada's largest quarterly loss.
Excluding the restructuring charges, Nortel forecasts a net loss of US$1.5 billion -- or US$0.48 per share -- and revenues of US$4.5 billion in the quarter.
The new job cuts come on top of the 20,000 announced earlier this year and will reduce its worldwide workforce to some 64,000 people.
"Led by the United States, the global telecom industry is undergoing a significant adjustment," said Nortel president and CEO John Roth.
Approximately 65 percent of Nortel's business comes from the United States.
"We are seeing a very significant reduction in equipment purchases in the second quarter of 2001 compared to the first quarter of 2001 and the second quarter of 2000," Roth said in a statement issued before North American markets opened.
The news sent Nortel shares on the New York Stock Exchange down sharply, dropping about 15 percent to US$8.92 in the opening minutes of trading Friday, but the stock managed to regain some ground and closed at 9.86, or a seven percent drop.
In Toronto, Nortel shares, which had been trading near two-year lows on the Toronto Stock Exchange, also plunged early on, but traders reversed course and starting buying the stock in the late afternoon.
Nortel closed at C$15.17 dollars (US$10.01), falling about 6.5 percent.
The TSE, where Nortel had had a weighting of 21 percent in January that has dropped to seven percent this month, got hammered by the news, slipping 103.97 -- or 1.31 percent -- to 7,816.08.
Tech stocks in European markets also fell after the Nortel news, notably in London.
The Nortel announcement comes one day after JDS Uniphase cuts its fourth quarter estimates by US$100 million. Nortel is a major customer of JDS.
Roth told investors in a conference call the company would not be issuing any further guidance this year and stressed that the visibility in the industry continues to be "very poor."
"As you know, I plan to retire in about a year from today and my personal goal is that at that point and time Nortel will be operating profitably once again," Roth said Friday in a nationally televised pre-recorded speech.
Roth, who is expected to retire in April 2002, told investors in a conference call that Nortel was seeing fewer purchases in its "optical long-haul business and to a lesser degree in circuit switching in the United States."
He said the industry is going through a "period of adjustment" and not just a downturn.
With the continuing slide in the level of purchases, Roth explained Nortel had to make further job cuts this year. Second quarter charges from the cuts will total US$830 million.
Canadian Prime Minister Jean Chretien, questioned about Nortel -- one of Canada's biggest employers, said he had confidence in the company and reiterated that "other sectors of the economy are performing very well."
In the near future, Nortel plans on focusing on getting cost structure in place, directing research and development into core growth areas, and discontinuing low-market businesses, such as the low-bandwidth access business Access Solutions DSL.
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