Nortel's Slide Continues

Once-high-flying networking vendor continues its decline, shedding employees and bleeding cash, while its CEO remains hopeful.

While a number of players in the networking space had a great year in 2007, telecom vendor Nortel was not one of them.

The company reported its fourth-quarter and 2007 results yesterday, and they weren't pretty -- with both financial and personnel losses.

Nortel reported a net loss for 2007 that totaled $957 million ($1.98 per share) -- a steep decline from the year earlier, when Nortel reported net earnings of $28 million ($0.06 per share).

Revenues at Nortel were also on the decline in 2007. The company reported that fiscal 2007 revenues came in at $10.95 billion, down from $11.42 billion in 2006.

Nortel also announced that efforts to restructure its business to return to profitability would mean eliminating 2,100 positions from its workforce. An additional 1,000 positions will be moved to what Nortel referred to as "lower-cost geographies."

"This will be an organized and methodical process but we will not blink," said Mike Zafirovksi, Nortel's president and CEO, during a conference call discussing the results. "We will ensure that we can compete against any company in the world."

Zafirovksi noted that 2007 was the second year of a transformational effort for Nortel that he said would take between 3 to 5 years to accomplish. The ultimate goal of the effort is to return Nortel to the prominence and profitability it had before it began to meltdown.

"We're in the middle of that journey and we're driving significant transformation," Zafirovksi said.

Nortel has been under a cloud of doubt since at least 2003 when allegations of accounting errors surfaced resulting in restatements of earning all the way back to 2000. In 2007, the Security and Exchange Commission (SEC) was still pursuing former Nortel executives on related charges.

During the call, Zafirovski said Nortel's accounting scandals are behind it and that it has settled with the SEC.

Zafirovski himself joined Nortel just over two years ago to help put the company back on track after having been derailed by the accounting mess. Part of that effort entailed a focus on investing in mobile broadband efforts.

The company's ambitious plans for transformation, though, may face obstacles in the form of another transformation -- in the economy, as signs point to a shift from growth to a possible recession.

Cisco, for instance, warned recently about softness in its business. But company execs also attributed the problem chiefly to self-fulfilling concerns about an economic slowdown, rather than any real macroeconomic factors.

Zafirovski, likewise, remained upbeat about his firm's prospects despite the economic climate.

"Yes, there is a slowdown in the economy," Zafirovksi said. "But the movement toward true mobile broadband is certainly happening right in front of us."

"Two years ago, we were losing market share in most segments," he added. "The rest of the industry seemed solid and predictable in contrast, and therefore, we launched the Nortel transformation plan with commitments to grow in particular areas."

In addition to mobile broadband, Zafirovksi was also keen on Nortel's 40G portfolio of products as well as its Metro Ethernet and Carrier VoIP offerings.

"We certainly have a ways to go, but we have completed two years of transformational effort and I believe we've made progress," Zafirovski said.

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