TORONTO - Nortel Networks Corp. (TSX:NT) stock tumbled by as much as 52 per cent to a new all-time low Wednesday after the company slashed its business outlook and said it plans another round of cutbacks and asset sales in the face of a struggling economy.
"Given our predicted financial results and our current balance sheet in a tough economic environment, we clearly understand the status quo is not an option for Nortel," chief executive Mike Zafirovski told a conference call.
Shares in the company were down $2.44 to $3.28 on the TSX after plunging as low as $3, down from a 52-week high of $18.96.
Zafirovski ran down a list of factors ravaging the company, including competitive pressures and the potential for further reduced spending by key customers.
Nortel is also suffering from "foreign exchange impact and certain product delivery delays," the company said in a release.
Management now expects revenue this year to be lower than last year's by between two and four per cent.
The company is conducting a "comprehensive review" of its business which will include further restructuring and other cost-reduction initiatives, it said.
"Throughout this process we will be maintaining our (research and development) investments, our new product introduction timetables and, of course, all customer commitments," Zafirovski told investors.
Nortel also intends to seek a buyer for its metro ethernet networks segment, described as "a premium asset with a highly differentiated offering."
The company, which keeps its accounts in U.S. dollars, now projects revenue in the current third quarter at $2.3 billion, down 14 per cent from a year ago.
Nortel's latest announcement isn't much of a surprise because other telecom giants have been talking about the developing troubles, suggested Duncan Stewart, president of Duncan Stewart Asset Management.
Last week, fellow U.S. telecom Ciena Corp. pulled back its fourth-quarter revenue estimates as its chief executive Gary Smith warned of a lengthening sales cycle at companies it sells to like AT&T and Verizon.
"We knew the global economy was weakening and we also knew spending was slowing," Stewart said.
Nortel "is a company in the midst of a turnaround, and it's a really bad time to hit a period of economic and carrier weakness."
The Toronto-headquartered company has faced its own deluge of troubles over the past decade, such as an accounting scandal that cost billions of dollars to settle lawsuits and pay legal bills.
Nortel lost $113 million in the second quarter on revenue of $2.62 billion, which was down from a top line of $2.76 billion in the first quarter.
Zafirovski said that the company is looking at its position to decide future relationships with its partners and customers, and should have further details during the next quarterly earnings call in November.
"The most likely option is that it will be acquired either before or after a financial crisis," Stewart added while noting that a deal could be made before the third-quarter earnings are released.
The planned divestiture of the metro ethernet networks business -- providing city-wide computer networks connecting businesses and other subscribers -- "is in line with the further consolidation necessary in the industry and will provide MEN customers and employees with a clear path forward," Zafirovski stated.
The new low for Nortel stock is equivalent to 30 cents on a pre-consolidation basis, compared with its peak of $124.50 during the turn-of-the-millennium technology bubble.
