More cuts at Nortel after huge Q3 loss

After its third quarter losses topped $3bn (£1.9bn), embattled communications vendor Nortel has revealed it will cut a further 1,300 jobs as part of a raft of belt-tightening measures.

Revenue for 2008's third quarter plummeted 14 per cent on the same period last year and stood at $2.32bn. Net loss, based on generally accepted accounting principles, was more than $3.4bn, compared to a net profit of $27m in Q3 2007.

As part of a restructuring plan designed to facilitate gross savings of $400m next year, Nortel revealed it plans to shed a further 1,300 jobs. A quarter of the cuts will take place before the end of the year with the remainder being made next year.

This follows the 2,100 job losses announced earlier in the year. After the vendor's Q2 results, chief executive Mike Zafirovski predicted there would be no more cuts and claimed he expected full year revenue growth in the low single digits.

After another painful quarter, Zafirovski is now projecting a year on year revenue decline of about four per cent. His company is also planning to enforce a freeze on new recruits and salary increases throughout 2009.

He said: "In September, we signaled our view that a slowdown in the market was taking place. In the weeks since, we have seen worsening economic conditions, together with extreme volatility in the financial, foreign exchange and credit markets globally, further impacting the industry, Nortel and its customers. We are therefore taking further decisive actions in an environment of decreased visibility and customer spending levels.

"Our performance in the third quarter of 2008 is in line with our 17 September expectations. Operating expenses in the third quarter are down significantly, partly as a result of immediate additional actions taken by the Company to improve our cost-base, decreasing over $100 million both sequentially and year over year. It is important to note, that despite the business env ironment, we continued to see important, multi-year customer wins in key areas of our business, validating the value and innovation that Nortel delivers to customers."

A number of factors contributed to Nortel's massive Q3 loss, including an increase in the valuation allowance against deferred tax assets of more than $2bn. The vendor was also hit by a goodwill write-off of $1.1bn and $50m charges related to the ongoing restructuring of the company.

Zafirovski added: "We took prudent and appropriate actions in re-evaluating key assumptions and projections supporting our deferred tax and goodwill assets. The benefit of the tax asset remains available to potentially offset the Company's future tax liability. It is important to note that these charges have no bearing on our current cash position."