The Canadian company, which has suffered through the long telecommunications spending downturn, said on Thursday it was in talks to sell five facilities to Flextronics International, the Singapore-based electronics manufacturing services group, for at least $500m.

The sale, if agreed, would effectively be the final part of Nortel's effort to outsource its manufacturing operations. The equipment maker has already sold about three-quarters of its manufacturing operations since 1999.

Over the past three years, Nortel has been under intense pressure to cut costs, as sales have dropped sharply during the severe downturn in telecoms equipment spending.

Analysts said the timing of the deal, if it materialises, pointed to renewed confidence within the tech sector. "It suggests confidence that companies are willing to pull the trigger on big deals," said Mark Lucey, analyst at TD Securities.

Nortel said it would transfer more than $500m in manufacturing and inventory assets to Flextronics in return for $500m in cash to be paid over nine months. Under the deal, Flextronics would assume more than $2bn of Nortel's annual cost of sales. Nortel's total cost of goods sold in 2003 was expected to be $5bn, down from $6.8bn in 2002.

Fritz Kaegi, analyst at Morningstar, said it would be a good time for Nortel to sell off the rest of its manufacturing operations because most electronics manufacturing services groups were operating at about 70 per cent of capacity and were under pressure to show growth.

Nortel said it planned to divest virtually all of its product integration, testing and repair facilities in Canada, Brazil, Northern Ireland and France.

But it will retain in-house all strategic management and control responsibilities.