Nortel's Death by 1,000 Cuts

Nortel Networks Corp.'s (NT) announcement Monday of a $3.4 billion third-quarter loss and plans to cut 1,300 jobs is, to  say the least, anticlimactic. In the run-up to the earnings announcement, estimates of the number of jobs the struggling company should cut had run as high as 10,000. And it was hoped that Nortel would have something more to say about its Metro Ethernet business, which has been on the block for almost two months.

Nortel shares fell 5.1%, to $1.11, in morning trade.

But instead of the deep cuts needed to give Nortel a fighting chance, the company is trimming a little here and there. Kris Thompson, an analyst with National Bank Financial, wrote in a research report that the cuts Nortel announced appeared "shallow," saying he that by his own calculations, Nortel needed to cut more like 3,000 jobs. And instead of moving forward decisively with a major asset sale, Nortel also appears to be struggling to find a buyer for what some consider its crown jewel.

What's more, critics say Nortel is falling short on the symbolic moves that shareholders typically look for in companies fighting for survival.  Mark Evans, a journalist who has long followed the company and author of the AllAboutNortel blog, says he is troubled by Nortel CEO Mike Zafirovski's failure to cut his own pay. "If Mike Zafirovski had decided to take a $1 per year salary or decline any bonuses in 2009, it wouldn't have meant much for the bottom line, but certainly would have sent a strong signal to Nortel's employees, who are being asked to suck it up," Evans wrote, noting that Cisco Systems Inc. (CSCO) CEO John Chambers in 2001 cut his annual salary to $1 in a show of solidarity with rank-and-file employees. --Andrea Orr 

See Nov. 10 announcement on earnings and job cuts from Nortel
See Sept. 25 post on Nortel's planned Metro Ethernet sale from Tech Confidential
See Nov. 10 commentary on Nortel's latest cuts from AllAboutNortel.com