Telecom industry reacts to Nortel bankruptcy filing

NASHUA, NH--PennWell’s Lightwave magazine staff has been keeping up with the telecom industry regarding its reaction to the recent bankruptcy filing by telecommunications giant Nortel Networks (NT; Toronto, ON, Canada).

NASHUA, NH--PennWell’s Lightwave magazine staff has been keeping up with the telecom industry regarding its reaction to the recent bankruptcy filing by telecommunications giant Nortel Networks (NT; Toronto, ON, Canada). In her recent blog postings dated January 15 and 16, 2009 (see www.pennwellblogs.com/lw), senior news editor Meghan Fuller Hanna said, “Nortel ... announced that it was filing for bankruptcy, a move that did not exactly come as a surprise, given the rumors swirling around the industry over the last several months.” Excerpts here from her blog relay the sentiment of the bankruptcy filing as viewed by the telecom industry:

In September, Nortel announced that it would explore a divestiture of its Metro Ethernet Networks (MEN) Business, including its optical and Carrier Ethernet portfolios. Its most frequently cited suitors included Huawei, Cisco, and Nokia Siemens Networks, with Alcatel-Lucent and Motorola considered long shots as both struggle with problems of their own. In December, The Toronto Globe and Mail reported that Nortel had received offers from “three serious bidders” and was considering selling off additional assets in lieu of seeking bankruptcy protection. In the meantime, the company continued to burn cash, the value of its shares continued their free-fall, and the company inched closer to NYSE delisting. In late December, news broke that the company was, in fact, exploring bankruptcy as an option, and several analysts argued that this could be its best course of action.

In an article from [the] New York Times, “Nortel Seeks Bankruptcy Protection,” Ian Austen cites several analysts who believe that the company is likely headed for liquidation. If they are correct, he writes: “ ... the end of Nortel would be one of largest failures in the telecommunications equipment business ... 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.”

“A breakup is not a top priority for the business. On the contrary, it’s to be able to come out the other side as a nimbler, more focused, successful technology company,” Mike Zafirovski, [Nortel’s] president and CEO, said in an interview.

Emerging stronger?

Hanna Fuller’s blog entries include an analysis of the findings from research group Ovum (www.ovum.com), in which analysts Dana Cooperson and Matt Walker believe that Nortel’s bankruptcy filing may result in a more balanced industry structure for communications equipment:

Cooperson and Walker note that when the latest phase of Nortel’s downward spiral took shape four months ago--with the announcement that it would explore divestiture of its Metro Ethernet Networks (MEN) division--they argued that “a more radical approach than divestiture was needed to cure the company’s woes.” In fact, say Cooperson and Walker, Nortel’s bankruptcy may open the door for broader industry rebalancing. They cite four specific examples, one of which is diversification through acquisition. Ericsson’s purchase of Marconi and Redback--after their respective bankruptcies--provides a blueprint for what is likely to be the ultimate outcome for Nortel: acquisition by a firm looking to fill out its equipment product line.

Finally, Cooperson and Walker concede that Nortel’s decision to file for bankruptcy now, when it still has $2.6 billion in cash reserve, may enable it to re-emerge as a smaller, more focused version of itself. However, they believe the scenarios they mapped out above, in which “rivals use Nortel’s bankruptcy as a chance to reshuffle the supplier landscape dramatically to their benefit, seem more likely.”

--Gail Overton

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