Nortel Networks (NT), North America’s leading telephone gear maker, announced plans to slash 1,300 jobs in an effort to cut costs by $400 million and counter a third-quarter loss of $3.41 billion.

The Toronto, Canada-based company reported a loss of $3.41 billion, or $6.85 per share, down from a profit of $27 million, or five cents per share, a year ago. Nortel’s revenue fell 14% to $2.32 billion.

Those losses include a tax adjustment of $2.07 billion and a writedown of $1.14 billion.

Wall Street didn’t expect the magnitude of the losses, as analysts polled by Thomson Reuters forecasted a loss of 32 cents per share on revenue of $2.3 billion. The news sent shares of Nortel sharply lower, nearing 52-week lows. 

"In September, we signaled our view that a slowdown in the market was taking place. In the weeks since, we have seen worsening economic conditions, together with extreme volatility in the financial, foreign exchange and credit markets globally, further impacting the industry, Nortel and its customers. We are therefore taking further decisive actions in an environment of decreased visibility and customer spending levels,” CEO Mike Zafirovski said in a statement.

At the forefront of those actions are plans to cut about 1,300 positions, or roughly 5% of its work force, freeze salary increases and extend a freeze on hiring until 2009.

Nortel also plans to consolidate its corporate structure, reevaluate its real estate holdings and consultant relationships and make deeper cuts to discretionary spending, including putting a freeze on all internal travel.

The restructuring moves will lead to $400 million in annualized savings starting in 2009, the company said. 

Even with the newly announced cost-cutting moves, Nortel revised its revenue and management operating margin outlook for the full year to the low end of a forecast released just two months ago. The company cited “the further deteriorating economic conditions” and unfavorable foreign exchange rates.