Nortel cash crisis set to cost more telecoms jobs

The UK telecoms sector faces a second wave of job losses following Nortel Networks’ shock announcement of a £14bn quarterly loss and plans to shed 10,000 staff worldwide.

The US telecoms manufacturer employs more than 8,000 people in the UK, about 10% of its total workforce, at research and development centres in Harlow, Paignton, and Monkstown in Northern Ireland.

A Nortel spokesman said: ‘We are looking right across the global business and there will be 10,000 redundancies, but as of now there is no information about where the jobs will be lost.’

The UK has been hit by a number of plant closures by US telecoms companies. Since the start of the year 9,200 job losses have been announced in the sector, with redundancies by US companies accounting for 5,550.

The initial shake-out followed a fall in capital investment in telecoms infrastructure, after a sustained global telecoms boom finally came to an end.

However, the downturn in capital investment is not the only reason for Nortel’s losses. The company has written off payments for recent acquisitions, restructuring across the group and costs related to the disposal of businesses.

The sheer size of the loss announced last week had an immediate effect on the share prices of other telecoms manufacturers, including many British companies. Marconi, Bookham Technology and Spirent all saw their share values nosedive.

Stocks hit a low

Bookham Technology, which makes optical-networking components and is a supplier to Nortel, lost 12% on its stocks, which hit a low of 279p last week.

The company said in March it would reduce its staff by 15%, making 150 people redundant. But so far it has shed 190 staff and announced on Wednesday that another 100 would have to go.

The investment bank Morgan Stanley has slashed by a third this year’s revenue forecast for the company. ‘Its order levels from existing customers have dropped significantly and new customers may not compensate for this in time,’ said the bank’s report.

Leading UK electronics company Marconi is also troubled by predictions of lower revenues. Its shares tumbled to a five-year low of 247.7p following the Nortel announcement. A market reportfrom financial services company Credit Suisse First Boston predicts that the company’s revenue will fall by 25% next year.

‘As a result of the continued deterioration in US spending, we believe Marconi is now unlikely to reach the 2002 revenue levels we had previously forecast.’

However, a Marconi spokes- man blamed an over-sensitive market for last week’s dramatic fall in its share price and said the company would not be making further redundancies in the UK on top of the 1,500 it said would go at Coventry, Merseyside and Nottingham in April.

‘When a major player like Nortel makes an unprecedented announcement, as it has done, that affects the whole sector. However, what we’ve seen is really an over-reaction by the markets. Wall Street was wildly over-optimistic about telecoms business models that couldn’t really last. The sector is now definitely in recess,’ he said.

Marconi is to renegotiate the price of its employee share options in response to the fall in the value of its stock, to protect it from making expensive payouts. In 1999 employees received 1,000 shares, worth £16.03. The new plan is to take back half the shares and re-issue them at a price of £8. The measure, which will cover both employee and executive options, will be voted on next month.

George Simpson, Marconi’s chief executive, who steps down in a month’s time, expects a fight over the re-pricing proposal but insisted it was necessary. ‘To do nothing would be to tear the guts out of our business,’ he said.

No escape for the healthy

Even companies that recently issued healthy annual accounts are not escaping the wider turbulence in the telecoms market.

A month ago, UK telecoms company Spirent announced a 69% rise in overall annual turnover, but its shares have since fallen to 190p, the lowest level since October 1999.

A spokesman said the company would put expansion plans on hold rather than make any redundancies: ‘At this stage there are no plans for any job losses.

We are controlling costs and are certainly not adding new people to the workforce.’Spirent’s operations are split between monitoring traffic on the networks, which is booming, and the manufacture of telecoms infrastructure, which has been hardest hit by the downturn.

‘In common with other companies we are seeing the effects of a slowdown in capital equipment investment. But we think the problem is a short-term situation. We are expecting an upturn in the first or second quarter of next year,’ the spokesman said.