The End of Nortel?

Is the end in sight for Nortel?

After announcing plans for even more restructuring, including the sale of its Metro Ethernet Network business, investors are bailing on Nortel – The stock is down 40%, or $2.14, to a all-time low of $3.15. It now trades at 0.24% of its record high, and sports a paltry market cap of $1.57-billion.

The big question is whether Nortel’s struggles are specific to a company struggling to reinvent itself, of an indication the telecom equipment market is poised for drastic consolidation amid a fierce competitive landscape and volatile economic times in which large customers putting the brakes on spending.

In short, it’s a sad day for Nortel and Canada’s high-tech landscape.

If you read between the lines of the press release and listen closely to the conference call earlier day, you’ll appreciate why CEO Mike Zafirovski describes it as a “pivotal” moment for Nortel, adding that “We clearly understand the status quo is not an option for Nortel”.

The most significant message is Nortel has officially – and finally – decided it can’t be all things to all people. It can no longer remain competitive and viable by developing a broad technology portfolio that tries to meet the needs of a wide variety of carrier and enterprise customers.

In the end, Nortel will be a much smaller company. That is, if Nortel remains a standalone entity.

“There is a challenge in being highly relevant in multiple areas of business,” Zafirovski said during the conference call. “We are realistic in today’s environment with our blanace sheet that as much as a number of us believe we can be successful in various segments, the view is that we will be very advantageous to take some decisions and focus on fewer areas.”

One of the key questions involving the sales of the Metro Ethernet Network business is who will acquire it and what they might be willing to pay – a key consideration given Nortel is looking for the deal to strengthen its balance sheet.

UBS analyst Nikos Theodosopoulos hit the nail on the head when he asked this question:

“The logical buyers in the market are also suffering from similar macro issues and it could cause limited amount of interested parties to buy it given the desire to maintain cash. Have you seen interest expressed recently in that business by motivated buyers willing to pay cah for this business? Or are you entertaining the thought process that it is a valuable asset and buyers will emerge?”

Zafirovski’s responded by saying:

“We will not provide details of context in terms of discussions. We have gone through broad level dicusisons internally and with the board. We have used an investment banker from the outside, and gone thorugh varoius options in respect to growth and opportunities to monetize.”

More: Tech Trader Daily has more details as does All About Nortel and Between the Lines.

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