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Nortel Could Sell Metro Ethernet Business
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Nortel is conducting a 'comprehensive review' of its business, which will include further restructuring and other cost-reduction initiatives.
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Thursday, September 18, 2008:
With a sustained and expanding economic downturn, Nortel Networks Corporation is experiencing significant pressure as Carrier customers cut back their capital expenditures further than previously expected and certain Enterprise and Metro Ethernet customers defer new IT and optical investments. Slashing its business outlook for fiscal year 2008, Nortel is now looking at exploring the sale of its Metro Ethernet Networks (MEN) business, which includes optical and Carrier Ethernet portfolios.
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Since reporting second quarter 2008 results, the company is seeing additional pressure on revenue due to foreign exchange impact and certain product delivery delays from the third quarter into the fourth quarter.
As a result, Nortel currently expects revenues in the third quarter of 2008 of about $2.3 billion. Third quarter gross margin is currently expected to be approximately 39 per cent of revenue primarily as a result of a product delivery delay into the fourth quarter and customer mix within the Carrier business. Third quarter operating expense (SG&A and R&D) is currently expected to be $60 million less than the second quarter 2008 level.
"It is clear that the business environment in which we operate requires additional immediate and decisive actions," said Mike Zafirovski, president and chief executive officer, Nortel. "A comprehensive review of our business is taking place, and we are determined to reshape the company to maximise its competitiveness, drive a significant increase in effectiveness and efficiency company-wide and re-focus to establish a clear path for growth, profitability and renewed shareholder value."
As part of the review, planning is underway for further restructuring and other cost-reduction initiatives to significantly reduce the company's cost base to achieve a more competitive business structure as well as to mitigate the risks associated with the company's fourth generation carrier wireless investments.
"Monetisation of this asset is in line with the further consolidation necessary in the industry and will provide MEN customers and employees with a clear path forward. Throughout the process, Nortel will maintain MEN R&D investments, new product introduction timelines and all customer commitments," said Zafirovski.
"Great companies survive, and then thrive, based on their ability to adjust rapidly to changing market conditions, while delivering value to customers every single day," said Zafirovski. "We will move with speed to do what is right for customers and shareholders alike."
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