Nortel declares bankruptcy
Nortel filed for Chapter 11 bankruptcy today after its loss in the third quarter ballooned to $3.41 billion and 1,300 people had to be let go (story here).
Today’s filings occurred in Canada, Europe and the United States. “I firmly believe these are the right steps toward a solution for our company. This process will enable Nortel to become the highly focused and financially sound communications leader it should be,” CEO and President Mike Zafirovski wrote on the company’s Web site.
“Most importantly, Nortel is still very much in business, and our commitment to customers remains unwavering. We will continue to invest in leading edge R&D,” he wrote. “I can assure you we explored every possible alternative, sought a variety of solutions, and engaged in extensive consultation with our Board of Directors and many other experts.”
Nortel’s previous turnaround attempt, which began in late 2005, was unsuccessful because of the worsening global economy, the company stated.
The former Northern Telecom was not always in such bad shape. The company was considered a major player in areas such as VoIP, especially during the dot-com boom of the late 1990s, even while facing wireless hurdles.
New steps for Nortel may include selling various business units or receiving a capital investment as a way to go private, UBS analyst Maynard Um wrote today.
Specifically: “We believe an acquisition by Huawei would be negative for the European vendors as it would gain significant market access in North America and might also open the door for Verizon’s LTE vendor selection. However, this could lead to market repair in the fragmented optics market … but large M&A in the telco equipment industry have rarely led to margin improvement in the past,” Um wrote.
Nor is an acquisition by Ericsson a good fit, Um added. UBS today rates Alcatel-Lucent as neutral and Ericsson as a “sell” opportunity.