Wracked by the most severe industry slump in decades, Nortel also said it will further reduce costs so the company can break even on $3.2 billion in quarterly sales. It'll also seek to raise addition cash, though Nortel said it has sufficient liquidity to remain in compliance with lenders.

Previously, Nortel (NT) had forecast that second-quarter sales would end up slightly above or slightly below the first-quarter's level of $2.9 billion. Yet its primary customers - mainly the big phone carriers - continue to cut spending to deal with financial difficulties of their own.

One of the areas where cutbacks have been most dramatic has been in the optical segment. During the industry boom of 1998-2000, dozens of new companies laid thousands of miles of fiber for long-haul data traffic. Companies like Nortel made a bundle selling optical devices to help move traffic along those fiber routes.

Since the slump began, however, many upstart phone companies have gone out of business. Meanwhile, data traffic has not increased fast enough to generate fresh demand for optical networking gear. Companies like Nortel that bet big on optical now have to find ways to adjust.

Nortel said the latest reorganization will result in a charge of $600 million, spread over the second and third quarters. Its workforce is expected to fall to 42,000.