Nortel not out of business, yet

The vendor announced that after years of mounting losses and trouble, it filed for Chapter 11 bankruptcy protection in the US and under the Companies' Creditors Arrangement Act (CCAA) in Canada.

According to Nortel, the company made the decision to file for bankruptcy protection with the unanimous authorisation of its board of directors.

The vendor said the filings will not interrupt operations and that it has US$2.4 billion in cash on hand to fund operations during its restructuring process.

However the vendor took a US$3.4 billion quarterly loss in November 2008, which was Nortel's biggest in seven years.

The loss included a US$3.2 billion expense US$1.14 billion goodwill write-down combined with a US$2.07 million deferred tax adjustment.

Those results also included restructuring charges reaching about US$50 million.

Mark Fioretto, vice president enterprise, Asia South Pacific for Nortel, said its affiliates across Asia Pacific, including Australia, are not included in the Chapter 11 and CCAA Creditor Protection proceedings and are expected to continue to operate as normal.

“We remain fully committed to supporting our customers and partners in Australia and around the world through this process,” said Fioretto.

“The process we announced today is designed to translate our improved operational efficiency, double-digit productivity, focused research and development on technology.”

Fioretto claimed that there were no specific announcements made regarding job loss in the region.

“We are undertaking a comprehensive business and financial restructuring to strengthen the business and ensure its long-term viability.

"Nortel’s day-to-day operations globally are expected to continue without interruption,” he said.

Jens Butler, principal analyst at Ovum agrees that the filing will give the networking vendor breathing space.

“[The filing] will allow the company to reorganise, assess its business and financial status and look at some form of restructuring,” he said.

“This creates protection from creditors for a period to allow such an assessment.

"Chapter 11 in the US gives a lot of flexibility for the company to keep running and some special conditions with their debts.

“So it means that Nortel might be just taking advantage of the rules.

“This also means is that creditors may receive less than they are owed and could influence supplier and distributor decision-making.”

Butler believes in all likelihood Nortel will be broken up.

“Expect some "cherry picking" by the competition over the next few days/weeks,” he said.

“This could be an opportunity to woo potential "white knights" to some of the prized assets ... such as the Enterprise Solutions, Metro Ethernets and Carrier divisions."

He said bankruptcy protection isn't the final nail in an organisation's coffin.

However it could prove disastrous for a company that is already struggling for business/sales/cashflow as it may be more difficult to convince customers to buy from them.

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