Networking equipment company Nortel Networks Corp. will realign its optical long-haul business, a move that might mean as many as 3,500 layoffs, the company said today.
The company had previously announced that it was laying off 1,500 people in that business but added an additional 2,000 in today's announcement, company spokesman David Chamberlin said.
The move surprised at least one analyst. "I was under the impression that optical was one of their remaining strengths," said Martha Young of Boulder, Colo.-based Enterprise Management Associates.
In a statement, Brampton, Ontario-based Nortel said it took the move in an attempt to bring the company to break-even status by year's end. Nortel also announced that it was downgrading previous earnings estimates for the second quarter. The company now expects earnings to be either flat or down 5% from the same quarter last year.
But Young said she wonders about the long-term viability for the troubled company. "As much as you like to believe [the layoff and realignment are] for efficiency, I would rather doubt it at this point," Young said.
She said Nortel faces stiff competition from a variety of sources and pointed to such companies as Extreme Networks Inc. in Santa Clara, Calif., as continuing to make trouble for Nortel. While big telecommunications companies are hindered by government regulation, smaller companies like Extreme don't face the same regulations, and that spells trouble for companies like Nortel.
Young said Nortel has some great intellectual property, including its optical networks, switches, policy-based management solution and its voice over IP strategy, that could make it a takeover target.
Chamberlin said the company had no comment on Young's speculation regarding a sale or takeover.
Nortel, which employees about 44,000 people, has been hit with thousands of job cuts in the past 18 months. In February 2001, the company announced it would lay off 10,000 workers, and in March 2001 it announced it would let go of another 5,000. The company has had several other job cutting announcements as well.
Nortel has had other troubles. In April, the company's credit rating was reduced to junk bond status. In February, Chief Financial Officer Terry Hungle resigned after it was revealed he had made trades in his personal 401k ahead of company financial press releases and outside company trading windows.