There is a possibility of Nortel going bankrupt, as the networking equipment giant is officially consulting with legal counsel, the Wall Street Journal reported today.

Nortel still hopes that its restructuring plan will suffice to keep the company out of court, the newspaper said.  But the numbers speak volumes: Nortel’s huge loss of $3.41 billion in the third quarter came as its revenue fell to $2.32 billion.  Layoffs for the Canadian company affected 1,300 people.  But it’s just the latest bad quarter in a trend that goes back to the burst of the dot-com bubble in the late 1990s.

The company, in a statement today, responded: “Nortel is hard at work reshaping the business to even better serve our customers. There are those who fuel negative speculation, but there are many more who believe that Nortel has put in place the necessary plans to strengthen our financial footing and reset our cost base. Even just two weeks ago, Standard & Poor's reaffirmed our credit rating … Nortel is a viable partner for the long term. We have no debt maturity until 2011, and we are preserving and strengthening our cash position.”

Outside of Nortel, other companies may be negatively impacted.  Peers such as Ericsson, Nokia Siemens, Huawei and Alcatel Lucent may also look to acquire Nortel at a reduced price.

Another report, also in the Journal, in February said that Nortel may form a joint venture with Motorola, although Motorola is having its own financial trouble.

Nortel can also be sold part-by-part.  “One possibility includes splitting up the carrier and metro Ethernet business and the enterprise assets with the former going to Huawei and the latter Mitel,” Avian Securities managing partner Avi Cohen said in a research note today.

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