Technology

49% stock plunge - Nortel says revenue will fall in 2008

Posted September 18, 2008

— Nortel Networks Corp. (NYSE: NT) on Wednesday lowered its 2008 outlook, predicting revenue will be down 2 to 4 percent this year as customers cut back and delay capital expenditures amid a global economic downturn.

The news sent Nortel stock into freefall before the markets opened. Shares fell 18 percent, or 94 cents, to $4.36. Shares had closed Tuesday at $5.30. They have traded between $4.94 and $19.50 in the past 52 weeks.

By noon, NT shares fell to a seven-year low of $3.42, down 40 percent on the day.

Shares closed at $2.68, a drop of  $2.62, or more than 49 percent.

The troubled international networking giant, which is based in Canada, employs some 2,000 people at its Research Triangle Park, N.C., campus.

"It is clear that the business environment in which we operate requires additional immediate and decisive actions," said Nortel President and Chief Executive Officer Mike Zafirovski in a statement.

"A comprehensive review of our business is taking place, and we are determined to reshape the company to maximize 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," Zafirovski said.

In June, the company had said it expected revenue to grow by a low, single-digit percentage.

Nortel said it is experiencing "significant pressure" as carrier customers reduce spending more than expected and certain business and Metro Ethernet clients defer new IT and optical investments. The company also is suffering from certain product-delivery delays from the third quarter into the fourth quarter.

Nortel now predicts third-quarter revenue of $2.3 billion, compared with analysts' average forecast of $2.66 billion, according to a Thomson Reuters poll.

Nortel is reviewing its business to find other ways to cut costs. The company also is considering the sale of its Metro Ethernet Networks unit, which includes its optical and carrier Ethernet portfolios.

Nortel said its gross margin in 2008 would be about 42 percent of revenue and operating margins would grow by 125 to 175 basis points. That outlook is less optimistic than in June, when the company said gross margins would be about 43 percent of revenue and operating margins would grow by 3 percentage points.

Analysts polled by Thomson Financial expected, on average, revenue to grow about 2.4 percent this year to $11.21 billion.

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