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8/10/2009
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Nortel CEO Resigns After $274 Million Loss

Ericsson purchased Nortel's prized CDMA/LTE unit last month; the transaction is under government review.

Nortel Networks president and CEO Mike Zafirovski reported Monday a second quarter loss of $274 million and resigned abruptly along with five other board directors of the firm, which has been in bankruptcy for seven months.

Zafirovski said in a statement that the firm is at a "natural transition point." After seven months in bankruptcy proceedings, the firm has sold off its most valuable asset to Ericsson, but Canadian government officials are reviewing that transaction.

With Zafirovski's sudden resignation, Nortel is functioning with a skeleton top management crew. Harry Pearce, Nortel's board chairman, led the directors' exodus. "We've reached a logical departure point," he said in a statement. "Mike (Zafirovski) made a commitment to see the process through the stabilization of the company, sale of its largest assets and the right plans and people to continue operating our business and service customers. He has done so."

Ericsson purchased Nortel's prized CDMA/LTE unit for $1.3 billion last month after Nokia Siemens Networks publically made a $650 million bid for the operation. While LTE isn't scheduled to begin rolling out in a major way until next year, many global carriers have said they will use the super robust infrastructure. In the U.S., Verizon Wireless has said it plans to begin deploying LTE in two markets later this year, for instance.

At a Canadian parliamentary hearing Friday, Mike Lazaridis, co-chief executive of Research In Motion, said RIM believed it had "handshake" deals with Nortel to acquire some of its LTE assets, but the informal agreements fell through. "We felt like we were snookered," he said.

RIM has expressed an interest in acquiring LTE intellectual property; the provider of the popular BlackBerry phones has had to pay several hundred millions of dollars for patent rights and wants to reduce its exposure to LTE intellectual property litigation.

RIM, which, like Nortel, is headquartered in Ontario, has urged the Canadian government to intervene in Nortel's sale to Ericsson. At the hearing last week, Ericsson Canada president Mark Henderson defended the company's plan to acquire the CDMA/LTE assets and argued that the auction to sell the assets was legitimate and valid.

The nine-person board has been whittled down to three with David Richardson to serve as the new Chairperson.

Zafirovski was brought in 3 years ago from Motorola to transform Nortel, which was reeling from a series of accounting scandals and from an overall downturn in the networking infrastructure business.

"It was unfortunate the transformation was derailed by a deteriorating economic climate and the company's legacy cost structure," Pearce said. "The operating improvements and strategic investments made during his tenure significantly contributed to the fact that Nortel's businesses are so attractive to potential buyers today."


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