Barron's:
Nortel Swings the Ax
Nortel Networks fired seven more of its finance executives, as the telecom vendor tries to get a handle on its true financial performance. In April, the Brampton, Ontario, firm had sacked its chief executive, after discovering that Nortel execs had misrepresented results in 2003 to make it seem that Nortel had returned to profitability, earning themselves handsome bonuses. Last week, the company also said that it probably broke even in the first half of this year, on sales of just over $5 billion. The New York-listed shares rose about 15% on the week, to close Friday at 3.86.
By year end, a new round of layoffs will trim $450 million to $500 million in annual expenses. Good thing, because Nortel expects its gross margins to come under pressure. After averaging about 43% in the first half of this year, Nortel predicted that gross margins would range between 40% and 44% in 2005.
The margins of telecom's traditional vendors are being challenged by low-cost competitors from China, like Huawei, ZTE, UT Starcom and Putian, said Nortel's new chief executive, William Owens. "We see them in Europe today," he says. "We see them in many other markets, such as South America."
There are probably too many vendors worldwide now, Owens told me, and that oversupply puts additional pressure on pricing and margins. He aims to get Nortel into fighting trim, so that it can operate within the industry's new cost structure |
