Nortel files for bankruptcy protection in two continents

Communications giant Nortel’s future looks bleak after the Toronto-headquartered company yesterday filed for bankruptcy protection in Canada, the US and Europe.

The move will almost certainly result in large-scale job cuts at the company, which has already shed 18% of its workforce since 2005. Late last year, the firm reported a $3.4 billion quarterly loss for the three months to 30 September.

CEO Mike Zafirovski sought to reassure customers and partners by explaining that the move “was the right step towards a solution for our company” and would “enable Nortel to become the highly focused and financially sound communications leader it should be”.

“Nortel is still very much in business and our commitment to customers remains unwavering. [Bankruptcy protection] will put Nortel on sound financial footing once and for all. It will allow us to deal decisively with our cost and debt burden, restructure our business and narrow our strategic focus in an effective and timely manner,” he said.

However reassuring Zafirovski intended his words to be taken, the knowledge that Nortel is on far shakier ground than expected is likely to cause loss of sleep among many companies with Nortel service contracts – not least the organisers of the London Olympics, of which Nortel is one of the largest sponsors and the provider of Internet access, call centres and phones for the Games site.

Nortel’s collapse could also severely damage the Canadian economy, given that the telecoms giant is among the country’s largest companies, employing 32,000 people. Yesterday the Canadian government sought to shore up the company’s finances with an emergency injection of C$30 million.

Gartner analyst Steve Blood said the most important point was that Nortel had only filed for bankruptcy protection, not bankruptcy itself.

“This is probably the best action to take in order for Nortel to resolve its challenges, and existing customers have no need to panic,” he said. “Channel partners in Europe generate revenue from supporting Nortel equipment. They can’t afford to simply give that up, and Nortel has agreed with its suppliers to meet continued demand.”

He continued: “Nortel has good products. However, for new purchases, some customers are likely to see other competitors as a less risky option, and we would expect Nortel to lose some share of new business during this current period. For companies committed to Nortel, we would recommend that they depreciate purchases over a shorter time frame, perhaps three years instead of five or six, which might be the normal case.”

It has been a rough week for technology companies. Oracle and Microsoft are rumoured to be planning massive double-digit job cuts, while even current corporate darling Google is shedding jobs, cutting 100 recruitment positions and closing three engineering offices in Norway, Sweden and Texas.

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