What to Expect in Nortel’s Future
Nortel Files for Bankruptcy
Jan. 15, 2009 (Vol. 30, No. 2)
Telecom equipment giant Nortel Networks Corp. announced that it has filed for bankruptcy protection in Canada and the U.S. on Jan. 14.
The Toronto-based manufacturer has been trying to turn around financially since 2005, but Nortel says that the global financial crisis and recession have added to its financial challenges and directly impacted its ability to complete the transformation.
Though Nortel has not disclosed its total assets or current debt, the manufacturer’s bankruptcy filing in Delaware revealed that the manufacturer owes one creditor alone, Bank of New York Mellon Corp., nearly $4 billion, reports The Associated Press.
Enterprise Business is “Solid”
This is not an end point for Nortel, says Alan Sulkin, president and chief analyst for Hackensack, N.J.-based TEQConsult Group. Nortel needed this filing to rescue itself from its financial situation, he says. It gives Nortel the chance to delay payments and regroup for a substantial amount of time.
Sulkin believes that Nortel will have to make some serious changes. It might have to divest less profitable parts of the company
(such as wireless) or halt production on less solid branches of its business, such as the carrier side, he says.
However, Sulkin does not think that the enterprise PBX line of business will see much change. The enterprise branch is the strongest in the company, and the most likely to bounce back in this type of economic situation, he explains.
Regardless of the outcome of Nortel, the enterprise business will move forward. “There is too big a base of users for this part of the company to go under,” Sulkin predicts. He mentions the possibility of Nortel becoming an enterprise-only manufacturer.
Nortel currently has $2.4 billion in cash and plans to use it “to preserve its liquidity and fund operations during the restructuring process,” according to the vendor. Nortel maintains that it will remain “100% focused on serving customers” through continued support of its product portfolio.
“Nortel must be put on a sound financial footing once and for all,” said Nortel President and CEO Mike Zafirovski in a press release. He is confident that Nortel can build on its core strengths to become a financially sound leader in the communications industry.
Nortel is the first major technology company to file for bankruptcy because of the economic crisis. (