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Author: mendomann Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5026  
Subject: Re: Nortel files for bankruptcy. Date: 1/17/2009 4:30 PM
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Canada’s technology icon is unlikely to emerge from bankruptcy protection


The bigger they come
Jan 15th 2009
From The Economist print edition

IN THE end the question was not if, but when. On January 14th Nortel,
a troubled Canadian maker of telecoms equipment, filed for bankruptcy
protection, making it the first big technology firm to succumb to the
recession. "Nortel must be put on a sound financial footing once and
for all," explained Mike Zafirovsky, its chief executive.

It marks the end of a breathtaking fall. Nortel, a high-flyer during
the internet boom, was once Canada's largest company, employing 95,000
people worldwide and boasting a stockmarket value, at its peak, of
C$366 billion ($251 billion), accounting for more than one-third of
the value of the entire Toronto Stock Exchange. Just before the filing
this week, its workforce had shrunk to 26,000 and its stockmarket
capitalisation to a mere C$191m ($156m).

The immediate cause of Nortel's demise is the recession, which hit it
particularly hard. In November Nortel posted a third-quarter loss of
$3.4 billion. Revenue in its core business, which sells switching gear
to telephone companies, fell by 24%. But the roots of Nortel's
troubles go deeper. It never really recovered from the bursting of the
internet bubble in 2000-2001, followed by an accounting scandal in 2004.

Will other big technology firms follow it into bankruptcy? Not
necessarily. Although its rivals are not doing too well, they are
stronger. In December Alcatel-Lucent said demand for its products
would fall by 8-12% next year, and it would not make much of an
operating profit before 2010. Even Motorola and Sun Microsystems,
embattled makers of telecoms equipment and high-end computers
respectively, should be able to make it through the recession,
provided they are not taken over or broken up by their own management.
Both firms have plenty of cash in the bank.

Still, Nortel could become a model. Its filing was a "strategic move",
says Richard Windsor, an analyst at Nomura Securities. With $2.4
billion in the bank, Nortel could have limped along for a while. But
it went for bankruptcy protection now, he says, so it would not have
to do it in total desperation when the money had run out. Will it
emerge in one piece? Probably not, says Mr Windsor. Its parts are
likely to be sold, perhaps to Huawei Technologies, a Chinese rival
which has been looking to boost its presence in North America for some
time. It is a sorry end for a once-proud Canadian technology icon, but
this way investors will at least get some of their money back.


Copyright © 2009 The Economist Newspaper and The Economist Group. All
rights reserved.
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