The one-time highflier posted a $3.41 billion loss and attempted to calm shareholder concerns with a new reorganization plan that will force the company to shed 1,300 jobs and ready itself for a breakup.
CEO Mike Zafirovski did not frame the company’s plans to create “more vertically integrated business units” as the first step in the packaging of its business units for sale. But Nomura analyst Richard Windsor certainly saw it that way.
“Yet another reorganization has been sold as improving efficiency but looks more like a strategic packing to facilitate the breakup of the company,” Mr. Windsor wrote in a note on Tuesday.
He believes that the Toronto-based company will be forced to at least stanch the hemorrhaging before it is forced into a fire sale.
“We hope…that the company can divest when it wishes to, rather than being forced to by its balance sheet,” he wrote. “This is the only way in which we believe shareholders can hope to get a good deal from any sales that the company makes.”
Effective January 2009 the company will scuttle its current matrix structure and create three vertically integrated business units.
The Enterprise unit will compete directly with its much larger rival Cisco, while the Carrier Networks unit will do battle with an array of telecommunications companies, including Alcatel-Lucent, Ericsson, and Huawei.
The third unit will be the Metro Ethernet Networks unit, which has been on the block for some time.
Nortel is rumored to be willing to sell its Carrier Networks unit, which includes its wireless business, along with Metro Ethernet Networks, and focus on its enterprise business.
The new layoffs come on top of 1,200 announced in February. The restructuring is expected to result in annual gross savings of approximately $190 million, with total charges to earnings and cash outlays of $130 million.
The $3.21 loss was made up of a $1.14 billion goodwill write-down against enterprise and carrier business assets and a $2.07 billion revaluation of deferred tax assets. Last year Nortel reported a profit of $27 million.