Nortel describes 'deteriorating' scene

Reporting third-quarter earnings today, Nortel Networks described a spending environment that is bad and getting worse rapidly.

When the equipment vendor lowered its 2008 revenue expectations in September, Nortel Chief Executive Officer Mike Zafirovski said, some carrier CEOs called him to question his assessment of the carrier spending environment.

“They chided me for possibly portraying the picture as more negative than they were seeing internally,” Zafirovski said. “Two to three weeks later, the CEOs called back to say, ‘On second thought, we’re taking costs down as well.’”

When asked how today’s picture compares to the one Nortel saw in mid-September that prompted it to announce, among other things, the sale of its Metro Ethernet business, Chief Financial Officer Pavi Binning said, “The situation, certainly at the moment, is about the same and deteriorating.”

Though Nortel’s woes are broad-based and tied to the global economy, the company cited spending cuts among North American carriers as a particular pressure point. While Nortel’s overall third-quarter revenue was down 14% from a year earlier, its revenue from carriers was down 24%. (Enterprise revenue, adjusted for deferrals, was essentially flat.) Though the Metro Ethernet business is still growing and saw a book-to-bill ratio of 1.1 in the quarter, overall orders from carriers “remained under pressure,” Zafirovski said, projecting the company’s revenue to hit the low end of the lowered range it gave in September.

In response to these worsening conditions, the company announced new restructuring initiatives today, including the elimination of 1300 more employees next year, adding the total planned reduction in headcount to about 2500, or roughly 10% of its total full-time workforce. Those actions should yield $260 million in savings, Nortel said. It will also freeze hiring and salaries for next year.