After insisting for months that its robust
forecasts could withstand the U.S. economic slide, Nortel Networks
has slashed its 2001 profit forecast by two-thirds and now plans to
cut 10,000 jobs this year.
The profit warning after the stock market closed Thursday
threatened to douse the flickers of confidence investors have shown
for technology shares this week.
Those stocks have been hammered over the past month amid similar
announcements from other major technology companies such as Cisco
Systems saying business conditions are turning even weaker than
expected in the United States.
"This is going to impact trading (Friday) across the board" in
telecommunications and technology shares, said Tom Lauria, an
industry analyst for ING Barings. Lauria noted that he had already
cut his forecasts for Nortel twice since December, "but not
enough. It's a more severe degradation than most people were
expecting."
But no matter what happens Friday on the overall market,
investors were quick to punish the Canadian company's stock. Nortel
tumbled $7.73 per share, or 26 percent, to $22.02 in Thursday's
after-hours trading, suddenly erasing $23 billion of the company's
market value. Nortel's stock had risen 20 cents to $29.75 in
regular trading on the New York Stock Exchange before the
announcement.
Nortel, the world's top supplier of optical gear for telephone
and Internet data networks, also said Thursday it will eliminate
6,000 more positions this year on top of the 4,000 job cuts
announced last month.
Six thousand of those 10,000 positions already have been
eliminated.
Company officials wouldn't say how many of those jobs had been
cut though layoffs or how many of the remaining cuts would be
achieved with layoffs. Officials would only say they were trying to
minimize the number of layoffs by not replacing workers who retire
or quit.
Nortel is one of several major technology companies cutting jobs
to cut costs in a weakening economy. Also on Thursday, Dell
Computer announced plans to cut 1,700 layoffs Thursday. Other
planned job cuts announced in recent weeks include 16,000 at Lucent
Technologies and 9,370 at Motorola, both major rivals to Nortel.
The rapid economic slowdown has prompted the Federal Reserve to
lower its lending rates twice since the start of the year in a bid
to spur new borrowing and spending. Some analysts, however, say the
Fed may have waited too long to act.
Nortel now expects just 15 percent growth in sales and a 10
percent gain in operating profits for the year, down from
management's previously steadfast forecasts that those measures
would improve 30 percent or better.
"While we previously noted that economic uncertainties and
capital constraints were impacting our outlook, we are now seeing a
faster and more severe economic downturn in the United States,"
said John Roth, Nortel's chief executive officer.
"We now expect the U.S. market slowdown to continue well into
the fourth quarter of 2001," said Roth, suggesting that strong
growth in overseas markets should help replace some of the lost
U.S. business.
