Nortel files for bankruptcy

Struggling Canadian networking company plans extensive business, financial restructuring

Financially struggling Nortel Networks filed for Chapter 11 in US bankruptcy court Wednesday.

The Toronto-based company is seeking creditor protection in the US, Canada and EMEA (Europe, the Middle East and Africa), it said in a statement.

Nortel gave "full consideration to the alternatives" to bankruptcy, but given the current economic downturn decided that bankruptcy is in the company's best interest long term.

The telecommunications equipment vendor will undertake "a comprehensive business and financial restructuring" and expects to emerge from the bankruptcy process "more focused, financially sound and competitive."

Nortel had a US$107 million bond payment due Thursday. Last month, the New York Stock Exchange informed the company it would be delisted if its share price did not rise above the minimum $1 within six months. Nortel shares ended Tuesday on the NYSE trading at $0.32, with trading halted Wednesday in New York and Toronto in the wake of the bankruptcy filing.

All last year, Nortel tried to get a handle on its dire financial situation, including several rounds of layoffs, attempts to sell its Metro Ethernet unit and a WiMax deal with Alvarion, but so far nothing seems to have helped.

"In some sense it's not a complete surprise. Nortel has been struggling because of its heavy exposure to CDMA combined with the overall downturn," said Mike Roberts, principal analyst at Informa Telecoms & Media, referring to the company's heavy investment in Code Division Multiple Access technology.

Nortel has also never quite recovered from a financial meltdown around 2000, according to Roberts.

Many telecom vendors are struggling. Alcatel-Lucent is also having a hard time, but it has more scale in the infrastructure segment than Nortel and leads in some markets, Roberts said.

Just as Alcatel and Lucent merged, that option is one possibility for Nortel, but how that might play out is hard to guess, according to Roberts.

"There have always deals that have been worked on and kicked around involving Nortel," said Roberts.

Part of Nortel's business was linked with Huawei Technologies, and there have been rumors regarding Nortel and Motorola's network units pairing up, but that hasn't transpired, according to Roberts.

Nortel hired lawyers late last year to consider filing for bankruptcy, but announced in December that it would stick with a cost-cutting plan laid out in November. However, financial analyst Nikos Theodosopoulos of USB soon after in December said that a bankruptcy filing early this year could be the best plan for Nortel to pursue.

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