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What will happen next with Nortel?
[January 17, 2009]

What will happen next with Nortel?


Jan 17, 2009 (The News & Observer - McClatchy-Tribune Information Services via COMTEX) --
Nortel Networks' bankruptcy almost certainly spells the breakup of the storied telecommunications company that houses some of its key functions and prized assets at Research Triangle Park.

The ailing Canadian company announced Wednesday that it is seeking bankruptcy protection as it restructures. The future of Nortel's local business units remains uncertain, but many workers face layoffs at a time of rising unemployment.

Out of several possible scenarios, a leaner Nortel would emerge from the wreckage, salvaging some operations here. Another possibility: A buyer could absorb Nortel workers and keep some RTP operations as part of another company.

In the coming shakeup, Nortel employees could transfer to competitors that move in to cannibalize Nortel by picking off the choicest pieces. The surviving employees could end up at Cisco, Juniper, Alcatel-Lucent or Huawei, the up-and-coming Chinese gear maker.



"There are going to be pieces of Nortel that will land on their feet at another company," said David Vorhaus, a telecommunications analyst at the Yankee Group in Boston. "Not all the workers will survive if Nortel gets divided up and sold for parts."

For the Nortel refugees, new bosses could mean the end of wage freezes, slashed pension benefits, and most recently, the elimination of severance pay and health insurance for layoff casualties. Severance packages are among the Nortel debts that are frozen by the bankruptcy proceeding, and veteran workers who had counted on months of pay during unemployment will likely get nothing.


In the latest nerve-wracking incident, some Nortel employees in the United States who were expecting paychecks this week will not be paid until Tuesday. In a company memo issued Friday, Nortel assured all employees they will be paid, blaming the delay on a timing snafu in the bank transfer.

Nortel is down to 2,100 workers here, less than a quarter of the workforce during Nortel's heyday about a decade ago. Further staff cuts are imminent as the company struggles to operate.

Customers will bail out on potential contracts, according to some Wall Street analysts who have abandoned following the company. One analyst advised clients that Nortel's stock is worthless and the company doomed.

Despite its shrinking business, Nortel still remains a major provider of telecommunications gear and data networking services worldwide. The company is bound by long-term contracts with major telecommunications carriers, banks, insurance companies and government agencies. That part of the business will continue.

One of Nortel's strongest divisions, the Enterprise Solutions group, is run by Joel Hackney, Nortel's top executive at RTP. The division accounted for 27 percent of third quarter revenue and sells telephones, phone networks, routers, switches, data networks and network security equipment to business customers and government clients.

Nortel spokesman Jay Barta cautioned that the Enterprise unit is not based in RTP, however, but spread throughout the company, with a large presence in Ottawa and Texas. Attempts to reach Hackney were unsuccessful.

Other key functions at RTP include the Emergency Recovery Center, a round-the-clock disaster recovery hub for telecommunications clients.

The Network Operations Center, also at RTP, monitors worldwide phone and data networks, an essential service that runs complex automated information networks. "That's the thing that's keeping the lights on in the various places where Nortel gear is already deployed," Vorhaus said.

Nortel has been struggling to turn around its business for the past five years and blamed the global financial meltdown for worsening problems. The company has lost nearly $7 billion since 2005, is burning through cash reserves and is saddled under a debt of $4.5 billion.

Nortel's downfall can be traced to an accounting scandal exposed in 2004 that resulted in the dismissal of top executives, regulatory investigations and shareholder lawsuits. Wednesday's bankruptcy filing was widely expected after Nortel hired financial and legal advisors last month to explore financial options.

For years the company had projected a sanguine outlook, despite the depressing financial reports, waves of layoffs and growing investor frustration.

Analysts dismiss the positive spin as largely calculated to shore up customer confidence. Analysts lost faith long ago, and customers are now expected to follow.

"We expect that Nortel's customers would accelerate their move to reduce their dependence on the company," wrote analyst George Notter for Jeffries & Co. in San Francisco. "For any new equipment decisions currently getting made by carriers, we expect that Nortel has now been fully scratched from consideration."

The bankruptcy news was met with a sense of inevitability and a hint of sadness.
"They did not have to turn out this way," wrote analyst Brian Modoff of Deutsche Bank in his parting note this month when dropping coverage of Nortel.

"If the company had been more open to outside opinions they could have created a different fate for themselves," Modoff wrote. "As it stands now, we think it is unlikely they remain an independent entity for much longer."

john.murawski@newsobserver.com or 919-829-8932
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