Nortel to Undertake Dramatic Cost-Cutting Plan

| About: Nortel Networks (NT)
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Nortel's CEO Details Recovery Plan [Wall Street Journal]

Summary: After its seventh loss in the past nine quarters, Nortel's CEO Mike Zafirovski is planning dramatic cost-cutting measures such as reducing spending on materials, R&D and administrative costs -- which are going to be slashed 50%. Zafirovski hopes to save $1.5b/year by 2008, commented that the telecommunications firm is on the "path to improved profitability," and is planning new products to raise profit margins. According to Ping Zhao, a senior analyst with CreditSights, Nortel suffers from "too many vendors and too little business," as evidenced by its third quarter loss of $99 million, in spite of its 17% revenue increase. Although competitors Alacatel and Lucent are easing competitive pressure by joining forces, Nortel has been passed up by prospective buyers because of its $4.4 billion debt and negative cash flow. Nortel faces the additional obstacle that phone companies may not install equipment fast enough to help the company meet its targets.
Related links: Media coverage: AP. Commentary: Nortel Reports Smaller Loss; Shares Fall 6%Winners and Losers in the Optical Communications MarketNortel Networks Refusing to Write Down Tax-Deferred AssetsPatricia Russo on Taking the Lucent-Alcatel Helm. Conference call transcripts: Nortel Q32006.
Potentially impacted stocks and ETFs: Nortel (NT), Alcatel (ALA), Lucent Technologies (LU), Cisco Systems (NASDAQ:CSCO)

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