Blog Post

Updated: Nortel Is Bankrupt, More Layoffs Coming

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

logo_purpleUpdated with confirmation, comment from Nortel: In a sign of just how deep the troubles of the troubled telecommunications industry currently run, The Globe and Mail is reporting — and Nortel Networks has now confirmed — that the equipment maker (s NT) plans to file for bankruptcy, perhaps as soon as today. The Canadian company has $4.5 billion in debt, and faces declining sales for its gear as operators pause network deployments. To further its woes, Nortel is having a tough time selling off its metro Ethernet division, a move aimed at raising more cash.

Nortel could not be reached for comment, but Bankruptcy rumors have dogged the company in the last few weeks. Tomorrow it has to make a $107 million interest payment on its debt — something that analysts know it can do now, but are worried about down the road. It’s odd that a company with cash on hand would file for bankruptcy, but Nortel could already have expressions of interest from potential buyers who could buy the company without its debt burden after a trip through the bankruptcy courts. A company spokesperson, via email, said simply that, “After full consideration of all other alternatives, and in light of the current adverse economic environment, Nortel concluded this step is in the best long-term interests of Nortel and its stakeholders.”

The Globe and Mail proposes a bleaker scenario, speculating the Nortel may choose bankruptcy now because it’s concerned about its ability to raise financing to get it through the bankruptcy process if it waits until its coffers run dry. In that case, an earlier bankruptcy could make Nortel a better target for a buyer interested in keeping employees and healthy product lines.

“Nortel must be put on a sound financial footing once and for all,” said Nortel President and CEO Mike Zafirovski said in the press release announcing the move. Of course, Nortel has been trying to turn around since the telecom bubble burst:

The Company commenced a process to turn around and transform Nortel in late 2005, and the Company made important progress on a number of fronts. However, the global financial crisis and recession have compounded Nortel’s financial challenges and directly impacted its ability to complete this transformation. Nortel is taking this action now, with a $2.4 billion cash position, to preserve its liquidity and fund operations during the restructuring process.

As far as its employees go, the Nortel spokesperson said the company wasn’t making any related layoff announcements. “However, our costs still need to come down. As part of our comprehensive restructuring, we do expect that there will be further layoffs.”

22 Responses to “Updated: Nortel Is Bankrupt, More Layoffs Coming”

  1. My experience in working with other vendor / management teams has been that once the cut backs are done and the company settles down, there is likely some good that can be derived from the company besides just profits. It takes a special leader to be able to balance the needs to drive profits with the satisfaction of a group of highly technical employees who see their work as a lot more than a vehicle to maximize ROI, and this group has these types of employees. It will be interesting to watch and learn what happens.

  2. Victor Blake u hit it right on the Head! Thats NT fault for not being more flexable and change with the times! Cheers to u Victor Blake u should have been the CEO u would have done alot better!
    Da Durban Senior Field Communitions Data & Voice Tech. E.N.S Comunications

  3. as a former BMR scientist, I can tell you the days in nortel have been numbered for a long time. Once the bean counters got control of the company and began the practice of rewarding themselves and thereby killing off the talented staff, it does not take a phd to understand that nortel destroyed itself more from within. I just glad I cashed out my 401 and pension in 2002. We did have many ip products ready however, when groups such as mine were constantly forced to fix products purchased from others. We were bleed dry from within and those massive waves of talent leaving is the biggest sign. Dead cats may only bounce once

  4. This has been an inevitable end to this company for some time now. It has more to do with bad decisions and management at Nortel than with the current economic environment. The truth about the infra market, is that you have three global non-Chinese vendors and on Chinese vendor. Each of the non-Chinese vendors try to compete by differentiating, but end up having to compete on price, while the Chinese vendor competes on price from the outset. Realistically, what place does this market dynamic leave for little Nortel?

    • I agree with Jukka’s point about Nortel’s bad business decisions being the driving force behind this bankruptcy but I don’t think we can divorce it from the business climate. Warren Buffet said when the tide goes out we get to see who has been skinny dipping. Inefficient companies can survive in good times but suffer disproportionately vis a vis their leaner competition in bad times.

  5. This is not about trouble with the telecom industry. It’s about a vendor that, since they veered away from building their first PBXs and phones, did not understand the techology, had exhorbitant prices, didn’t listen to customers, and consistently purchased also-ran vendors that where themselves boat-anchors.

    I recall a EVP of the company that claimed that it’s DWDM equipment was the foundation of the modern Internet despite the fact that they didn’t even support an IP protocol stack for managing that same equipment. It is just one example of how out of touch with reality NT MANAGEMENT was.

  6. More senior mis-managing crooks at work. Much like a former powerhouse; Cabletron/Entrasys networks. Once the cash is gone the senior managment will look for another company to mis-manage and negotiate their severance package. At least some of the “troners” went to jail.