What's next for Nortel Networks?
The Toronto-based company's Chapter 11 bankruptcy protection filing Wednesday produced an immediate show of support from its user group, the International Nortel Networks Users Association (INNUA), while investment bankers speculated that the firm will be broken up.
The telecommunications infrastructure company has had some units up for sale for months, and efforts to sell them are likely to intensify, albeit at bargain-basement prices. A likely target is Nortel's Metropolitan Ethernet Networks Division, as well as some of its advanced wireless networking business. Nortel's partnership with Microsoft on unified communications is likely to get attention, too, but traditional networking hardware companies are unlikely to be interested in that operation.
INNUA said its more than 4,000 Nortel stakeholders have rallied around the company. In a statement, INNUA president Steve Ford said: "We fully support Nortel's decision and trust it will bring an even stronger focus to the enterprise solution set. 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."
User group officials said they have been briefed on the bankruptcy filings and pointed to Nortel's contract with Flextronics to ensure that the product supply chain will continue uninterrupted as a positive action.
While the $2.4 billion that Nortel has in the bank will tide the company over for a short period, its liabilities are piling up at a rate fast enough to prompt analysts to predict a permanent closure of Nortel assets. "I don't think it's going to exist," Mark Sue of the Royal Bank of Canada told The New York Times.
Canada's government has said it will provide some $30 million in grants to help the company, but with billions of dollars at stake, that amount isn't expected to go very far.
Nortel is not alone among hardware telecom infrastructure companies to encounter hard times in recent years. Longtime competitors Alcatel-Lucent, Cisco, Ericsson, Huawei, Motorola, and Nokia-Siemens have all seen their stocks fall sharply. All those are now likely to circle Nortel to see what assets they can pick up at rock-bottom prices.
Nortel's CEO, Mike Zafirovski, is hoping the bankruptcy filings -- in Canada and the United States -- will enable the company to reorganize and emerge stronger.
"Nortel must be put on a sound financial footing once and for all," Zafirovski said Wednesday. "These actions are imperative so that Nortel can build on its core strengths."