TORONTO – Mike Zafirovski, the chief executive who has presided over Nortel Networks Corp. since 2005, is leaving the company along with much of the former telecommunication giant’s board of directors.
The company said Zafirovski and two-thirds of its current board have resigned as Nortel, which filed for bankruptcy protection in January, reported second-quarter financial results that showed losses more than doubled from a year earlier.
Toronto-based Nortel lost $274 million US last quarter as customers uncertain about the company’s future continued to bypass Nortel in favour of competitors. Since its bankruptcy filing on Jan. 14 Nortel has moved to sell off its major business units.
Sweden’s Ericsson agreed to pay $1.13 billion US for most of its wireless unit – Nortel’s biggest division by revenue – last month. Avaya Inc. has made a base bid of $475 million US for Nortel’s Enterprise unit, the company’s second-biggest business line, which develops network gear for large corporations. An auction for the unit is scheduled for next month.
In what were some of Zafirovski’s final comments as CEO, the executive said in a statement that Nortel was "successfully stabilizing" the businesses through the asset sales, ensuring they would continue to be platforms for innovations in the field.
Several other assets are up for sale, including the company’s Metro-Ethernet Solutions unit, which develops networks for dense urban areas.
"We are in active discussions for our other businesses," Zafirovski added. "The direction has been set and we are now at a natural transition point as we continue to service customers, maximize value through sales and continue restructuring activities."
The resignation of Zafirovski as well as several board members is effective immediately, the company said.
"We’ve reached a logical departure point," added Harry Pearce, chairman of Nortel’s board, also in the statement. He, alongside directors John Manley, James Hunt, Richard McCormick, and Claude Mongeau, will be stepping down, as well.
Nortel, once the largest telecom equipment maker in North America, was in the midst of a multi-year turnaround plan when the recession took hold last year. "It was unfortunate that the transformation was derailed by a deteriorating economic climate and the company’s legacy cost structure," Pearce said.
Pavi Binning, Nortel’s chief restructuring and financial officer, will remain to oversee day-to-day operations.
Revenue for the three months ended June 30 declined 25 per cent to $1.97 billion US, while losses climbed to $274 million US, or 55 cents a share US. That figure compares with a loss of $113 million US, or 23 cents a share US in the corresponding quarter a year ago.
Research and development spending plunged by almost a third to $301 million US in the period, while Nortel said it took restructuring charges of $101 million US.
Since filing for bankruptcy protection, Nortel has also not had to pay severance to laid-off employees or make some payments on pensions, leases and other expenses.
Nortel’s revenue declines were led by declines of 27 to 37 per cent in its Metro Ethernet and Enterprise Solutions divisions and its LG joint venture in Korea.
Nortel said carrier sales fell 20 per cent from a year earlier to $920 million.
During the June quarter, sales in the U.S. dropped only five per cent, a big improvement from a bad March quarter. Nortel said a large customer (likely Verizon) started buying equipment.
But the U.S. improvement was offset by declines of 41 per cent in Europe, 26 per cent in Asia and 52 per cent in Latin America.
Research and development spending, which drives the Ottawa campus, fell 47 per cent to $301 million in the quarter compared to a year earlier. Nortel said actual R&D spending was just $286 million when restructuring costs are removed.
Many suppliers, owed millions from obligations rung up late last year, are getting paid for goods and services delivered since the bankruptcy filing.
Even with respite from these bills, Nortel had a negative cash flow from operations of $274 million in the June quarter, more than double the results of a year earlier.
Financial Post and Ottawa Citizen
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