Nortel has announced an expected Q2 loss of $19.2 billion.
Canadian network equipment manufacturer Nortel has announced that it expects a net total loss for Q2 of US$19.2 billion, with an operating loss of $1.5 billion. Nortel also announced that it has secured an extra $2 billion in funding, that it will suspend dividends, and that it will cut another 10,000 jobs by the end of September in addition to the 20,000 job cuts it announced in April. Nortel shares fell by 13% on the announcements.
The largest part of the overall loss comes from a write-off on goodwill from acquisitions. More worrying is the operating loss, which comes partly from $950 million in written-off inventory and $830 million from the first round of job cuts. The real cause, though, is plummeting revenue – from $6.2 billion in Q1 to $4.5 billion in Q2.
All in all, the results present a gloomy picture. But it shouldn’t come as a shock to anyone. It’s become increasingly clear over the last few months and even weeks that most sectors of the network infrastructure industry are currently in serious decline, since telecoms and ISP customers are holding back on investments in new kit.
Nortel’s cost-cutting moves, which also include closing down its access solutions operations, may help bring the company back towards the black. But the company is no bloated giant; rather, it’s one of the best-run firms in the industry. The problem is that despite its technological and supply chain management expertise, Nortel just couldn’t adjust to the downturn far enough.
The company isn’t as troubled as many of its rivals – particularly Lucent. It will return to health in the long term. But its prospects for the next couple of years depend entirely on the depth and length of the tech downturn – and that depends on what happens to the economy as a whole. It’s no surprise to learn that Nortel has given up forecasting its earnings for future quarters. Even Alan Greenspan might have trouble carrying out that task.
