Thumbnail:
Nortel never really recovered from the last downturn.
Its market cap peaked at $250 billion eight years ago, but it's been all downhill ever since.
For the decline and fall of an industry institution, investors can thank a series of frauds by senior staff as well as the macro-economic climate and the much tougher equipment sector.
This time around Nortel has decided to quit while it is ahead. The very fact of its poor financial health eliminates it as a 1 supplier. With $2.4 billion in cash, it has moved now while it has some say in shaping its future as Chapter 11 plays out.
Despite noises from CEO Mike Zafirovsky about putting the company "on a sound financial footing", almost certainly it will be sold off, most likely in pieces.
The industry is in consolidation phase. Small vendors might survive in niches, but not in the global carrier market.
Nortel sells 2G GSM and CDMA and 40-gig optical gear to service providers, and VoIP and unified comms solutions to enterprises. A respectable portfolio (it's no. 1 in enterprise VoIP), but more attractive in pieces than as a whole.
Its most saleable part, Metro Ethernet, has been on the block since September. Reportedly, a tilt by Huawei fell through due to the usual political/security fears.
The traditional vendors were struggling even before the financial crisis hit. If the ambitious Chinese are ruled out, who else will buy‾
Nortel's Asian division has contracts with virtually all of the region's tier 1 carriers (although its Indian business is a part of the European division). It advises that in this part of the world it is business as usual.
Related news and analysis:
- Nortel files for bankruptcy
- China fears scuttle $400m Nortel-Huawei deal: report
- Nortel may be considering bankruptcy
- Nortel to cut jobs, restructure after dismal Q3
- Nortel may cull up to 5,000 jobs