Nortel Files for Chapter 11

Telecommunications company Nortel Networks and several of its worldwide subsidiaries on Wednesday filed for Chapter 11 reorganization and bankruptcy protection in the United States and Canada, citing the global financial crisis and current recession as factors contributing to its own financial challenges. Its U.K. subsidiary filed separately in that country.

Reportedly, the global company was facing third-quarter losses of $3.4 billion and in November announced that it would cut 1,300 jobs, or 5 percent of its total workforce. The company has made several failed attempts at corporate restructuring and shifting its business units to cut costs and increase efficiencies.

"Nortel must be put on a sound financial footing once and for all," Nortel President and CEO Mike Zafirovski said in a statement Jan. 14. "These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology, and customer relationships show it ought to be.

"I am confident that the actions we're announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D, and technology leadership into long-term success," Zafirovski continued. "I want to reaffirm Nortel's dedication to delivering world-class solutions and services to customers."

That came as good news to members of the International Nortel Networks User Association (INNUA), which pledged its continued support for the company and its products.

In a statement, the organization expressed the belief that Nortel's bankruptcy filing will afford it the opportunity to focus on strengthening its business to meet customers' current and future communications needs.

"INNUA represents thousands of Nortel's customers who remain committed to Nortel solutions. The majority of our members have been Nortel customers for more than 10 years. We appreciate how proactive Nortel has been with this decision and their affirmation of the support for their customers during this time" said INNUA President Steve Ford. "We fully support Nortel's decision and trust it will bring an even stronger focus to the enterprise solution set."

INNUA declined to speculate on Nortel's next move, but some other industry analysts weren’t as shy about making predictions. Dana Cooperson and Matt Walker, analysts at global consulting firm Ovum, for example, filed a statement in which they said the bankruptcy filing could leave a number of Nortel’s product lines, technologies, partnerships, divisions, and even customers as “candidates for shutdown or sale to the highest bidder.

“We believe, though, that in Nortel’s bankruptcy lies the opportunity for broader industry rebalancing. For a company targeting Cisco, bits and pieces of Nortel’s Enterprise and Metro Ethernet Networks (MEN) units are clearly attractive,” they said.

The two analysts also point to Nortel’s 40G/100G business, its wireline portfolio, and LTE assets as attractive focal points for a slimmed-down Nortel or a competitor. “There may also be some rediscovered jewels from [Nortel’s] recent acquisitions that became lost in the Nortel shuffle and may be of specific interest to some acquirers,” they added.

“Nortel emphasizes that its decision to file now, when its cash reserve is $2.6 billion, rather than six to 12 months down the line, gives it added flexibility. That may be so, and may allow it to re-emerge as a smaller, better version of itself in the future. However, the scenarios...in which rivals use Nortel’s bankruptcy filing as a chance to reshuffle the supplier landscape dramatically to their benefit, seem more likely,” they further said in the statement. 

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