No Recovery Until 2003 Investment in NT last July worth 12c on the dollar
19.2-billion hit stings Nortel
Huge second-quarter loss leads firm to shed 10,000 jobs, jettison business Patrick
Brethour03:31 GMT-04:00 Saturday, June 16, 2001
Nortel Networks Corp. will lose $19.2-billion (U.S.) in its second quarter -- the
second-largest quarterly loss in corporate history -- as its sales fall prey to an
unprecedented collapse in the communications-equipment market.Along with its
gloomy forecast, Nortel unveiled a sweeping plan to reduce its annual costs by
$6.3-billion, including 10,000 more job cuts, that will see the Brampton, Ont.,
company jettison extraneous business lines, customers and research programs.
Nortel made no projections for its third and fourth quarters, but chief executive officer
John Roth said he hopes that the painful downturn in the telecommunications sector
has finally bottomed out.
"Is this the end of it? God, we sure hope so; this is a brutal experience."
Prime Minister Jean Chrétien, speaking after a cabinet retreat, said Nortel investors
shouldn't panic."Nortel, it is a very good company, a very sound company [and] has
been performing very well over a long period of time. But in that sector there is a big
adjustment to be made, and they have to do it," he said, adding that inflation is under
control even though it hit its highest level in a decade last month.The implosion of
Nortel has shattered the company's image as Canada's lead actor on the stage of
global capitalism.
Five short months ago, Nortel was the undisputed champion of corporate Canada,
not only the largest technology company in the country, but the most respected.
Mr. Roth was named CEO of the year in 2000 and inducted into the Canadian
Business Hall of Fame."It was the gold standard, the company everyone wanted to
emulate," said Iain Grant, managing director of Yankee Group in Canada.
Now, Nortel's reputation of hypercompetence is shredded in the wake of its latest
warning about falling sales and soaring losses. A third of its workforce is being shown
the door. The value of its stock -- the most widely held shares in Canada -- has fallen
so sharply that a dollar invested in Nortel last July is now worth just 12 cents.
Nortel shares fell $1.06 (Canadian) to $15.17 yesterday on the Toronto Stock
Exchange, for a week-long decline of 20 per cent.The drop in Nortel's market value
in recent months has increased the vulnerability of Canada's premier technology
company to takeover, although Mr. Roth said yesterday that Nortel is not considering
a sale or merger with a rival.Michael Urlocker, telecommunications-equipment analyst
at UBS Warburg, said demand for communications equipment could fall even further
and that any recovery in demand might not begin until 2003 |
