Nortel to cut 2900 jobs in two years

Nortel Networks will reduce its workforce by 2900 people (or roughly 8%) by the end of 2008 as part of a restructuring effort announced last year, the company announced today. About 70% of that reduction (or about 2030 positions) will occur this year, starting in the first quarter and occurring in roughly equal numbers each quarter.

In addition to the net reduction, Nortel will also relocate about 1000 positions to markets where labor is less expensive. About 400 of those relocations will take place this year, Nortel said.

“These are tough but necessary measures, and we recognize the impact they will have on affected employees," Chief Executive Officer Mike Zafirovski said in a statement issued today by Nortel. "As we roll out the various initiatives over the next two years, every effort will be made to leverage normal attrition and re-deploy affected employees to other areas of the company.”

The cuts will come mainly in three areas. More than 40% of the reduction (or at least 1160 workers) will come from general and administrative jobs. Also affected are financial positions and research and development positions related to legacy product areas, such as ATM, TDM and GSM.

Nortel is determined to retain sales, marketing and research-and-development staff related to its most valued product areas, which include enterprise markets, converged services, next-generation wireless, metro Ethernet and IPTV.

“These actions will not impact sales or go-to-market resources,” Zafirovski said. “There are no reductions in those functions.”

Nortel will also cut the amount of office space it uses by more than 500,000 square feet this year (or less than 5% of its total) by closing about 65 locations around the world and consolidating space. “We’re using more compact and modest quarters than this company had five or six years ago,” said Peter Currie, Nortel’s chief financial officer, who will leave the company at the end of April.

Nortel expects the workforce and real estate reductions to yield a combined $400 million in annual savings—about half of which should come this year, Nortel said. However, the cost of the reduction could be as much as $390 million ($300 million for the workforce reduction and $90 million for the real estate). Three quarters of those costs will come this year, and most of the rest will come in 2008, Nortel said.

Among the goals of Nortel’s restructuring effort are to reduce its sales, general and administrative spending from its current level of about 11% of revenue to around 5% to 6% over the next few years. The company also wants to reduce spending on research and development to equal about 15% of its revenue.

During a conference call this morning to discuss the announcement, Zafirovksi was asked about Nortel’s future acquisition plans. Following this week’s announcement that Currie was resigning without a named replacement, some analysts conjectured the move signaled acquisitions in Nortel’s near future.

“I’m very confident and comfortable that profitable growth can be achieved both organically and with smart acquisitions,” Zafirovski said today. Nortel “will look very closely” at potential acquisition targets relating to areas the company has identified as strategically important, which include WiMax, IMS and IPTV. The company will bear in mind two key priorities as it evaluates acquisition targets, he said. “We will not overpay. And we won’t take a look at acquisitions we won’t be able to integrate.”