Nortel Networks Corp has cut 1,900 jobs from its 35,370 global workforce, and created 800 new positions at “centers of excellence” as new CEO Mike Zafirovski steps up his drive to achieve $1.5bn of savings by 2008.
It will also trim benefits under its pension plan for North American employees in a move to cut pensions expenses by $100m a year starting in 2008, which will save the company $400m in cash by 2012. Employees under 50 will no longer get company healthcare benefits when they retire.
Zafirovski said the moves are a continuation of efforts to increase competitiveness, better manage costs, and secure the resources to fuel innovation.
This is only beginning the process of radical change planned by Zafirovski. He wants the company to only concentrate on products where it has a substantial market share of 200% or more, and to look to growth areas such as WiMax, IMS, and IPTV.
Under the latest plan, Toronto, Canada-based Nortel is to create two new centers of excellence, as it now designates major regional centers, in Mexico and Turkey. It said the locations were selected because of its established operations in these countries, a strong labor pool, cost-competitiveness, and proximity to major customers based in these regions. It is part of a long-term plan is to consolidate more than 100 sites globally into fewer operations centers of excellence focused on delivering engineering, product and technical support, order-management, purchasing, and data analysis.
Nortel would not be drawn on how many sites would go but said that consolidation would eliminate approximately 1,200 positions, in part through attrition. However, it said it expects to create 800 jobs at these and other centers of excellence by 2008.
In middle-management, 350 jobs are to go, and business unit efficiencies are expected to cut a further 350 jobs.
Streamlining the organization in this way is expected to cost $100m over the next two years, of which approximately $35m is expected in the second quarter of 2006. The cash cost is likely to spread over two years, and annual savings are expected to be $100m in 2007 and $175m by 2008.
A wave of industry consolidation including Alcatel’s plan to merge with Lucent, Ericsson to buy Marconi, and Nokia to merge with Siemens’ telecoms equipment arm, has increased competition in the industry where Nortel is also facing competition from low-cost operators in China.