Embattled Nortel Warns of Lower Q3 Revenue

Nortel Networks (NT) warned Thursday that its full-year growth is expected to trail the industry, rather than lead it as the company had predicted as recently as a month ago.

The news sent Nortel's U.S.-traded shares down nearly 8 percent, or 30 cents, to close at $3.50 on the New York Stock Exchange (search) — well off this year's peak of $8.43 set in February after it issued now-discredited 2003 results.

The telecom equipment giant, under investigation for possible accounting fraud, is required by the Ontario Securities Commission (search) to issue biweekly status reports while it revises faulty earnings reports from past years.

The scandal has resulted in the firing of chief executive Frank Dunn and about 10 finance employees — lawsuits and criminal investigations in Canada and the United States.

Nortel expects its revenues in the third quarter to be lower than those reported for the second quarter, the company said in a news release.

"On a full-year basis, the company now expects that its 2004 revenue percentage growth over 2003 will be in the mid-single digits and that the overall communications equipment market will grow faster than that," Nortel said.

That wording is a shift from 2004 guidance first issued by Dunn and maintained by his replacement, retired U.S. admiral Bill Owens, who has been a Nortel director since early 2002 and took over the CEO's job in late April.

Owens said in August that Nortel expected the telecom equipment market to increase in "low-single-digit percentages and we will grow faster than that market."

Nortel spokeswoman Tina Warren acknowledged in an interview that Nortel's latest statement is a change in outlook for 2004. She added that Owens announced in August that Nortel will reorganize its operations, cut 3,500 jobs globally and focus on its core product lines.

"We really do believe those changes will help us address challenges in the marketplace that we're seeing, and Nortel is in a better position to compete strongly in 2005," Warren said.

She said Nortel is in the process of identifying the individuals who will be affected by the latest round of cuts, which will reduce the company's shrunken work force by another 10 percent. The company expects to have its plans finalized by Sept. 30.

On Thursday, Owens said he is confident "that Nortel Networks will be positioned to compete strongly in all of our markets with the right products and services as we move into 2005."

The company had promised to release annual results for 2003 and complete results for the first two quarters of 2004 by the end of September. That reporting date was recently put off by a month — to the end of October.

The company is under inspection by regulatory and legal bodies including the Royal Canadian Mounted Police and the Securities and Exchange Commission (search) for financial irregularities that go back several years.

The 3,500 research and development, administration and sales jobs being cut by Nortel in its latest restructuring are on top of 2,500 manufacturing jobs that are being transferred as part of an outsourcing agreement with Flextronics.

That will bring Nortel's global work force down to about 30,000 — less than one-third of the people it had at its peak in 2000, when the company reported over $30 billion in U.S. revenues.