Nortel shares plunge to 25-year low on gloomy forecast; looking to sell off major unit

19 September 2008

Shares in Nortel plunged on Wednesday after the Canadian telecommunications equipment manufacturer issued a sales and profit warning and put one of its fastest growing businesses up for sale.

Once a darling of the technology sector, Nortel's stock plummeted more than 50 per cent to close at $2.76, down $2.96, on the Toronto Stock Exchange - its lowest point in more than 25 years. That gave Nortel a market capitalization of about $1.4 billion, a far cry from the nearly $375 billion it enjoyed during the lofty heights of the tech bubble.

Nortel, which has spent the past three years recovering from an accounting scandal, is considering new cost cutting ideas after warning that its profit margin improvement in 2008 would be less than previously forecast. It is also considering selling its Metro Ethernet Networks business, which makes fixed-line equipment capable of carrying bandwidth-hungry applications such as high-definition television.

''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,'' CEO Mike Zafirovski said in a conference call with analysts.

Nortel is the latest equipment maker to be hit by the global economic downturn because fixed-line and mobile phone companies are cutting their spending. Nokia, the world's largest mobile phone maker, this month said its market share of handset shipments would decline in the third quarter, adding that its profitability could also be hurt.

Nortel yesterday said its 2008 operating margin would improve by 1.25-1.75 percentage points compared with 2007. The company's previous guidance was for a 3 percentage point improvement. It also said 2008 revenue would decline by 2-4 per cent compared with 2007. Previous guidance was for low single digit growth.