Nortel lowers 2008 targets

Nortel's woes deepened this week as the embattled vendor saw its stock price plummet after it was forced to revise its 2008 revenue outlook.

Last month the company predicted its 2008 revenue would display low single digit growth on last year. But the Canadian vendor revised its outlook this week and is now predicting a year-on-year decline of between two and four per cent on 2007's total of $10.95bn. That figure marked also represented a drop of more than four per cent on 2006's $11.42bn revenue total.

The company cited the worsening economic climate and the resultant pressure on carrier customers to reduce capital expenditure as one reason for the revision. Enterprise and Metro Ethernet customers deferring spending on IT and pressure from foreign exchange rates were also singled out as having a detrimental effect.

Nortel's stock has since sunk to its lowest point in a quarter of a century after dropping more than 40 per cent in one day. It now stands at less than $3, having been above $20 under a year ago.

Chief executive Mike Zafirovski said: "It is clear that the business environment in which we operate requires additional immediate and decisive actions. A comprehensive review of our business is taking place and we are determined to reshape the company to maximise its competitiveness, drive a significant increase in effectiveness and efficiency company-wide, and re-focus to establish a clear path for growth, profitability and renewed shareholder value."

Nortel indicated it is targeted more restructuring of the company as well as other cost reduction activities. The vendor hopes to be able to substantially reduce its cost base, thereby increasing the competitiveness of its business structure.

The vendor is also planning a divestiture of its Metro Ethernet Networks business to help provide funds for the restructuring. Nortel indicated that it hoped the combination of all the above measures would strengthen its balance sheet and help fund potential investments in its enterprise business.

Zafirovski added: "We are taking two years of consistent progress and leveraging it to make the necessary changes to preserve and strengthen our business. Great companies survive, and then thrive, based on their ability to adjust rapidly to changing market conditions, while delivering value to customers every single day.

"The work that Nortel, and its thousands of employees worldwide, have done over the last few years to re-tool the company and fix its operational performance gives us the capability to make the necessary changes. We will move with speed to do what is right for customers and shareholders alike."