Nortel to lay off 10% of staff

Nortel Networks is to cut 10% of its workforce - about 3,500 jobs - to reduce costs.

Nortel Networks is to cut 10% of its workforce - about 3,500 jobs - to reduce costs.

The cuts will mainly affect middle management, said Bill Owens, president and chief executive of Nortel on Thursday.

The staff cuts and cost savings relate to the consolidation of management and administration functions as the company combines its optical, wireline and wireless networking products to build converged networks, Owens said.

The staff cuts will cost between £164m and £218m, and should result in annual cost savings of £246m to £273m, the company said. The cuts should be complete by the end of the year.

Although Nortel is cutting management posts, it plans to add salespeople, Owens said.

Cost savings will come from other areas too, as the company consolidates its internal software systems to eliminate some of the 100 or more applications it uses, he said.

"We will be installing SAP across the company which should add to the efficiency and cost reduction," Owens said.

Improved efficiency and reduced costs are not inevitable with such endeavors: Hewlett-Packard recently reported poor financial performance in its enterprise servers and storage business unit after sales took a hit owing to problems entering orders into a new SAP system.

Owens announced a restructuring of senior management, giving him tighter control of the company. The president of federal systems, a business unit focused on the government sector, and the chief information officer will both now report directly to him, he said.

Nortel will also recruit a chief marketing officer reporting to Owens, giving greater emphasis to the marketing function, he said. 

The company also announced preliminary estimated financial results for the first half of this year at about £2.7bn, split evenly between the first two quarters, chief financial officer Bill Kerr said.

In the first two quarters of 2004, about 51% of Nortel's revenue came from wireless networks, and 10% from optical networks, the company estimated. The share of revenue from enterprise networks rose from 21% to 22% between the two quarters and that from wireline networks slipped from 18% to 17%.

Peter Sayer writes for the IDG News Service

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