Nortel Networks Corp. posted a third-quarter loss of $3.4-billion (U.S.) and said it will cut 1,300 jobs in an effort to bolster cash during an environment of shrinking customer spending and greater competition.

Mike Zafirovski, the chief executive officer, said he is accelerating cost-cutting as economic conditions deteriorate faster than expected.

The company's massive loss included a $3.2-billion writedown of goodwill and deferred tax assets. “It is important to note that these charges have no bearing on our current cash position,” Mr. Zafirovski said in a news release. Excluding those charges, Nortel lost 30 cents a share as revenue fell 14 per cent to $2.32-billion, in line with reduced guidance provided by the company on Sept. 17.

Investors hammered Nortel shares down 25 per cent on the news. They ended down 38 cents to $1.11 on the Toronto Stock Exchange on Monday.

Nortel Networks Corp.

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Nortel said it had $2.3-billion of cash left at the end of September. Analysts estimate that the company is burning through about $700-million a year. It has more than $3-billion of debt due in 2011.

“Improving cash and cash flow is a top priority for our company,” Mr. Zafirovski said on a conference call.

In September, the company put its metro ethernet networks business on the block in an effort to raise cash. The timing of the sale has proved problematic and some analysts say the unit will only fetch about $500-million in the weak economy. Nortel said it had no update to provide on the sale of the division.

Sales in the unit suffered a 12 per cent decline to $317-million during the quarter.

The company said the latest rounds of cost-cutting will cost about $130-million but produce annualized savings of $190-million annually. Combined with previously announced cuts they will deliver savings of about $400-million next year.

Kris Thompson, an analyst with National Bank Financial, called the latest round of reductions “shallow.”

“We are disappointed with this employee reduction program,” he wrote in a research note. “We had modelled a reduction of 3,000 employees based on an employee productivity analysis we had earlier conducted against Nortel's peer group.”

A new plan to restructure the company along three divisions – metro ethernet, carrier networks and enterprise solutions – could signal a willingness by management to sell off all the businesses, Mr. Thompson speculated.

Several key executives will leave Nortel by the New Year, including John Roese, the chief technology officer, and Lauren Flaherty, the chief marketing officer. Mr. Roese has been championing efforts to transform the company away from older technology and to develop lucrative business communications software.

“We are acting quickly to become a simpler and leaner company, with the greater flexibility and responsiveness required to manage our business in a rapidly changing marketplace.” said Mr. Zafirovski, who arrived at Nortel three years ago with a mandate to turn the company around.

The seriousness of Nortel's cash position was reflected in the company's decision to cut spending on research and development by more than 9 per cent in the quarter, to $377-million.

Nortel also suspended dividend payments on preferred shares.

The “board of directors has determined that in this uncertain economic environment it would be prudent to maintain liquidity and preserve cash,” Nortel said.

The company also cut its sales and general administrative expenses by 16 per cent year over year to $514-million.