Nortel Networks Corp said on June 27 it will cut 1,100 jobs, or 3.2 percent of its workforce, and squeeze its pension plan to trim costs and improve margins as it struggles to regain profitability.
Nortel, which lost $2.58 billion in 2005, will eliminate about 1,900 positions around the world and create 800 new ones in "centres of excellence" in low-cost Mexico and Turkey. It expects restructuring costs of about $100 million over two years, including $35 million in the second quarter.
The Brampton, Ontario-based company, said the changes will save it about $100 million in 2007 and $175 million by 2008 and help it meet its targets of growth in operating margins of more than $1.5 billion in 2008.
Several analysts lauded the initiatives, but said the struggling company - which has seen its payroll shrink from 90,000 employees to 35,000 over the past six years - needs further efforts to really get out of the woods.
"Nortel is no stranger to restructuring. To date, its efforts have not been successful at returning the company to strong profitability," wrote Scotia Capital analyst Gus Papageorgiou in a research note.
"Until management can deliver a clear strategic vision, we do not believe these initiatives alone can turn the company around," said Papageorgiou, who has a "sector perform" rating on Nortel's shares, and a price target of C$3.00.
Desjardins Securities analyst Paul Howbold said the measures should have a marginal impact on Nortel's 2006 results. Nortel will also slash its North American pension plan to cut annual costs by about $100 million from 2008 and save more than $400 million by 2012. It will also switch to a defined contribution plan and change health-care rules.