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Nortel 2Q Loss Expected to Reach $1.5 Billion

Toronto's Nortel Networks Corp. Friday warned of sharply lower revenue expectations and a much greater-than-expected loss for the second quarter of about $1.5 billion, about 48 cents per share. Wall Street had been looking for a loss of 6 cents per share, according to Thomson Financial/First Call.

The telecommunications equipment maker cited a weak global telecommunications market and falling equipment purchases.

"Led by the United States, the global telecom industry is undergoing a significant adjustment," said John Roth, president and chief executive officer of Nortel. "After several years of capital expansion exceeding the pace of business performance, the capital markets have significantly reduced the flow of funds to service providers. In response, service providers have made driving return on invested capital their primary focus. Consequently, new capital expenditures are being curtailed as service providers look to drive further efficiencies from the investments they have already made. As a result, we are seeing a very significant reduction in equipment purchases in the second quarter of 2001 compared to the first quarter of 2001 and the second quarter of 2000."

In an attempt to weather the losses, Nortel said it will cut another 10,000 jobs by the end of September. It cut 20,000 jobs in April. The latest round of cuts will lead to a charge in the third quarter.

The firm is also jettisoning its access solutions operations -- both narrowband and broadband -- in an attempt to further streamline its operations.

"In this challenging environment, Nortel Networks continues to execute the plan, which was laid out at the time of the announcement of our first quarter 2001 results, to rapidly align our cost structure to the current business level; to streamline our business around our core growth areas of Metro Optical, Optical Long Haul, Wireless Internet, Core IP/Intelligent Internet and Internet Telephony; and to focus our investments to deliver the key next generation networking solutions," Roth said. "We are making excellent progress on this plan and will continue to take the necessary steps to ensure we have the right solutions and resources to remain well positioned as we come out of this difficult period."

The moves will lead to a significant charge for the quarter. It will record an $830 million charge in connection with the 20,000 positions eliminated in April and the facilities it closed due to the job cuts. It will also take a $2.6 billion charge for shutting down the access solutions operations.

It will take a further $12.3 billion charge for writing down intangible assets, primarily related to the goodwill from the acquisitions of Alteon WebSystem, Xros and Qtera. It also expects to take a charge of $950 million (pre-tax) for increased provisions and charges.

To offset some of those charges, the company secured $2 billion in committed unsecured credit facilities through affiliates of J.P. Morgan Chase & Co. and Credit Suisse First Boston Corp.

"These additional credit facilities will enhance our flexibility and help to position us to execute our work plan over the next 18 months," said Frank Dunn, chief financial officer of Nortel.

Additionally, the company said it will suspend future dividend payments following payment of the current dividend on June 29.