Wednesday, January 14, 2009

Nortel goes bankrupt

There is not much to say here about this New York Times story:

OTTAWA — Nortel Networks, the Canadian telecom equipment maker, filed for bankruptcy protection from creditors Wednesday but analysts said its troubles might be too severe for it to recover and survive.

Unlike other companies, notably airlines, that have used bankruptcy protection to renew their businesses, Nortel, which began this decade as one of the world’s largest makers of telecommunications equipment, is probably headed for liquidation, several analysts said.

“I don’t think it’s going to exist,” said Mark Sue, an analyst with RBC Capital Markets, a unit of the Royal Bank of Canada.

If Mr. Sue and others are correct, the end of Nortel would be one of largest failures in the telecommunications equipment business. During the 1990s, Nortel designed and built much of the fiber optic equipment that now carries most of the Internet’s data.

Along with the company now known as Alcatel Lucent, it computerized the operation of telephone networks during the 1980s. Nortel pioneered the development of equipment and software that brought the world wireless phone networks.

Nortel’s demise would also be among the biggest business failures in Canadian history. During the zenith of the technology boom, Nortel’s market value accounted for about a third of all equity traded on the Toronto Stock Exchange.

Nortel’s shares peaked at 124.50 Canadian dollars in July 2000 in trading on the Toronto Stock Exchange. On Wednesday, Nortel closed at a market price of 12 Canadian cents, or 1.2 cents after adjusting for a stock consolidation. While the current economic slump contributed to Nortel’s decision to file for protection in both Delaware and its hometown, Toronto, the company’s problems began in 2001, when it was hit by the technology stock price collapse and became mired in an accounting scandal that led to criminal charges against three of its former executives.

Nortel’s woes went beyond finances. In the market for Internet-related equipment, Cisco Systems and others proved to be more innovative and successful.

In the heyday of the dotcom boom, Nortel was one of the biggest telecommunications companies, providing equipment and software for the wireless networks, and the internet. They were the pioneers in this field. Now companies like Cisco and Verizon have surpassed Nortel in providing such telecommunications equipment, sending Nortel into bankruptcy. I wonder how many other telecommunications companies will join Nortel as the world economy continues to slow.

3 comments:

Ralph Hoflich said...

Motorola must surely be close behind...

Eric A Hopp said...

Hello Ralph Hoflich and Corporatebully:

Thank you both for your comments. I've checked with the Motorola financials, and the two-year Motorola stock price chart shows a long decline on the Motorola stock price from $20 a share to around $4.90 a share. I haven't really been keeping up with the news on Motorola, however it appears that Motorola can't compete with Apple and LG in the cell phone market. Consumers have moved beyond the standard cell phone that Motorola has been producing, and are buying up Apple Iphones and Blackberries, of which Motorola doesn't provide a competing product. So Motorola is getting hammered. It certainly will be interesting to see if Motorola can survive in the next couple of years.

CorporateBully, I do not bank at the Royal Bank of Canada.

Ralph Hoflich said...

Looks like our predictions have come mostly true - Google buying out Motorola handsets. I guess the shell of Motorola still exists.

Who's next? NSN? Nokia? SonyEricsson?