Wall Street doubts Nortel plan

Telecom could compete in 1 or 2 key areas after deeper cuts, critics say

Nortel Networks' recently ordered job cuts may not be enough to appease growing impatience on Wall Street.

Some investors and analysts are prescribing a bloodletting on a scale the beleaguered Canadian company hasn't seen since thousands of North Carolina tech workers lost their jobs in the wake of the dot-com bust eight years ago.

Some of the slashing will undoubtedly cut further into the telecommunications equipment maker's dwindling operation in Research Triangle Park, which lost 11 percent of its staff last year and is down to 2,300 workers.

Even if Nortel executives fulfill their promises and right the company, the RTP site is never likely to return to its heyday. About a decade ago, that Nortel operation thrived, with 8,500 workers in its engineering labs, sales teams and customer support functions.

As Nortel struggles to regain its footing in the wake of an accounting scandal, its cheery rhetoric about its imminent turnaround and return to former glory has become a source of frustration on Wall Street. But an unstinting message from investors and analysts reveals the degree to which Nortel has squandered good will and public confidence.

"No one listens to them," said analyst Brian Modoff at Deutsche Bank in San Francisco. "When you lack credibility, there's a significant discount that's applied to everything you say and do."

Despite Nortel's business transformation strategy, its sales fell last year. And the company's stock continues to slump, having wiped out billions of dollars in value for shareholders and employees who own the stock.

In the past year, the stock is down 77 percent. Shares that fetched more than $600 in the summer of 2000, after adjusting for splits, now sell for $6.

Some say that at one-third its former size, Nortel can't effectively compete on multiple fronts against industry leaders such as Cisco Systems, Juniper, Alcatel-Lucent, Ericsson and other telecom gear makers that weathered the dot-com crash and rebounded.

A growing chorus of analysts and investors is calling on Nortel to jettison entire divisions in a radical surgery that would create a much smaller Nortel, nimble enough to compete in one or two key areas.

"They are jacks of all trades and master of none," Modoff said. "They still have some good core engineering, but they need to focus."

Publicly, the company is holding fast to its strategy of shifting research and development money to emerging data and communications technologies while continuing to provide its routers, switches, base stations and other products and services to established customers.

"We certainly believe in our strategy," Nortel spokesman Mohammed Nakhooda said. "We need to shrink or grow in the right areas."

Cutting 2,100 jobs

Nortel executives said last month that they will eliminate 2,100 positions and move 1,000 jobs to low-cost countries. The company has about 32,500 workers worldwide.

Nortel did not specify how the latest restructuring would affect its operations at RTP.

Some of these workers will be let go as the company shifts resources to low-cost regions. If Nortel adopts the growing consensus on Wall Street, many employees could be spared, by virtue of working for Nortel units that might be sold to competitors.

Critics warn that Nortel is running out of time and must act soon to salvage key divisions that will form the basis of a more focused company.

"Undoubtedly, this will be another body blow to a Nortel culture that has been battered by cuts in the past several years," telecom analyst David Hodgson of Genuity in Toronto wrote in a research report. "We are quite simply just reiterating the overriding sentiment we have heard from Nortel's institutional investors in the past few months."