Nortel Bankruptcy, Moto Lays off 4,000
Posted by Sam Churchill on January 15th, 2009
It marks the end of a breathtaking fall, says The Economist. Nortel was once Canada’s largest company, employing 95,000 people worldwide with a stockmarket value, at its peak, of C$366 billion ($251 billion), accounting for more than one-third of the value of the entire Toronto Stock Exchange.
Just before the filing this week, its workforce had shrunk to 26,000 and its stockmarket capitalisation to a mere C$191m ($156m). The company’s stock was trading under 20 cents after the announcement this week.
Mike Zafirovski, Nortel CEO and president, said in a video message on the company’s Web site that the current economic climate, high debt and an expensive cost structure pushed the company into seeking legal protection as it restructures its operations.
Its filing was a “strategic move”, says Richard Windsor, an analyst at Nomura Securities. With $2.4 billion in the bank, Nortel could have limped along for a while. But it went for bankruptcy protection now, he says, so it would not have to do it in total desperation when the money had run out. Will it emerge in one piece? Probably not, says Mr Windsor. Its parts are likely to be sold, perhaps to Huawei Technologies, a Chinese rival.
Business Week has more on the bankrupcy while Network World has a FAQ.
Nortel began in 1882, when the Bell Telephone Co. of Canada started a manufacturing division, with 13 employees. Bell Canada spun off the manufacturing business in 1895 into the Northern Electric and Manufacturing, which amalgamated in 1914 with Imperial Wire & Cable Co. to form Northern Electric Co. Ltd.
Bell Canada had majority ownership - a control relationship which continued until 2000 - and the rest was held by Western Electric, the manufacturing subsidiary of American Telephone and Telegraph Co.
Mike Zafirovski, a former Motorola and General Electric executive, was named CEO in late 2005, and in 2006 Nortel paid US$2.5 billion to settle shareholder litigation over the bookkeeping scandal.
Zafirovski has presided over a disheartening series of workforce cuts and restructurings in his effort to, as he regularly put it, “re-create a great company.” But he struggled under a “death watch,” says the Canadian Press, “sailing the ship into a perfect storm.”
Zafirovski said the filing marks the start of a comprehensive business and financial restructuring that is aimed at providing “financial footing” for the company.
Nortel’s Wi-Fi Mesh Nodes were a huge part of Taipai’s municipal wireless cloud, the largest in the world. It was expected to be completed in 2006, and planned to provide coverage for 90 percent of its population via 5,000 access points deployed across the city’s 272 square kilometers.
The Canadian government said it will support Nortel’s efforts to restructure. Tony Clement, minister of industry, said in a statement that Export Development Canada has agreed to provide up to $30 million in short-term financing through its existing bonding facility.
Ronald Gruia, a Frost & Sullivan principal analyst, said Nortel was forced to enter into bankruptcy because of its debt and cash flow. He said the company’s board of directors met Tuesday to discuss a pending $107 million interest payment. The payment is part of a $1 billion bond the company is due to pay in 2011. The company also has a pension deficit that has been reported to be between $2.3 billion and $2.8 billion.
Gruia said the board decided to act now. The company ended 2008 with $2.4 billion, which could decline to $1.6 billion by the middle of this year.
Maynard Um, UBS analyst, wrote in a note following the announcement that a potential sale of Nortel to Hauwei Technologies would pose a threat to European vendors, who now dominate the global market. L.M. Ericsson is positioned at the top followed by Nokia Siemens Network, Alcatel-Lucent and Hauwei, according to ABI Research.
Nortel Networks planned to focus on LTE, after it announced it was working with Alvarion for WiMAX products. Vancouver 2010, promised to be the first all IP-based Games thanks largely to Nortel.
Meanwhile, Motorola said today it will cut about 3,000 jobs in its mobile devices division and another 1,000 cuts from “corporate functions and other business units.”
The job cuts are in addition to 3,000 job cuts announced last quarter. Today’s job cuts are expected to yield an annual savings of $700 million in 2009. The job cuts and other cost-cutting measures announced last quarter are expected to yield savings of $800 million.
Taken together, the cost-cutting measures announced today and in the fourth quarter will save the company $1.2 billion in 2009, said Sanjay Jha, co-CEO of Motorola and leader of the mobile devices division since last summer.
The Schaumburg, Illinois company, which employs 66,000 people, is a manufacturer of wireless telephone handsets and wireless network infrastructure. Its global market share opf handsets has been on the decline; from 18.4% of the market in 2007, to just 9.7% by 2008.
source: dailywireless.org
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