Nortel Networks Corp., once a US$28 billion network equipment maker, is now selling off its business assets. What has happened in the 12 months since it filed for court protection from creditors?

Nortel bankruptcy: One year later

One year ago, Nortel Networks Corp. filed for bankruptcy protection in Canada, the U.S. and other countries in which it operates.

Toronto-based Nortel, founded in 1895 as the manufacturing unit of what is now Bell Canada Enterprises (BCE) Inc., made everything from telegraph switchboards to kitchen appliances. It started running into trouble in 1998, though it seemed to take most investors a few years to clue in. In 1997, it made a profit of US$829 million on revenues of US$15.449 billion. Although revenues peaked at US$27.9 billion in 2000, its net earnings were negative 10 of the past 11 years. Canadian and U.S. courts gave Nortel protection from creditor claims shortly before an interest payment was due in January, 2009.

Some troubled companies turn over all their assets to their creditors, effectively turning the bondholders into shareholders. Others buy time and start repaying debt later on. Nortel decided to sell off all its assets in order to pay its bondholders.

Ericsson wins auction for CDMA

It started with the carrier wireless unit that makes code division multiple access (CDMA) equipment and holds Long Term Evolution (LTE) patents. For US$1.13 billion, Telefonaktiebolaget LM Ericsson acquired Nortel’s wireless units and hired 1,600 former Nortel workers, about 900 of whom work in Canada.

That deal was controversial.

Last July, Research in Motion Inc. complained to the federal government that it was effectively blocked from bidding for those assets, and warned if they landed in foreign hands it could harm “national interests.”

Why RIM claimed Nortel’s LTE patents affect national security

Initial reaction from Info-Tech’s Mark Tauschek

The products Avaya will acquire include switches, routers, private branch exchanges (PBXs), unified communications, phones and key systems. It is not clear right now what products Avaya will keep and whether it will drop any. However, Avaya left the switch market years ago when it stopped supporting its Cajun products, but Avaya emphasized unified communications technology with its Aura product line.

Multi-billion dollar acquistions

Nortel entered the data networking space when it bought Bay Networks for US$9.1 billion in 1998.

Over the next three years, it built its optical networking technology through acquisitions. These included: Qtera Corp. of Boca which made a 10 Gigabit per second optical networking product, for US$3 billion; Clarify for US$4 billion; Xros for US$3 billion; and CoreTek Inc., which made tunable photonics, for US$1.3 billion.

Nortel agreed to sell its optical networking and metropolitan Ethernet businesses last fall to Ciena Corp. for $769 million.

Linthicum, Md.-based Ciena, whose products include aggregation switches for telecom carriers, said at the time it plans to offer jobs to at least 2,000 Nortel employees, about 1,400 of whom would be based in Canada.

Other acquisitions in 2000, included Promatory, Architel, Epicon and Sonoma. It also bought application acceleration vendor Alteon WebSystems Inc. for US$7 billion. Nortel got about a quarter of a cent on the dollar for its application acceleration assets, which it agreed in early 2009 to sell to Tel Aviv-based Radware for US$18 million.

Share price peaks

In January, 1996, Nortel’s shares were trading at $58. Four years later, its shares dominated the Toronto Stock Exchange 300 index, hitting $123. If company had not split its shares three times, then they would have closed at about $984 on July 26, 2000. But shareholders who didn’t sell in the summer of 2000 were probably disappointed. The stock dropped to $2.50 before consolidating tenfold in December, 2006. Last summer shares were trading at 79 cents.

It’s not clear right now what will happen to Nortel.

In addition to its enterprise, CDMA and optical networking units, Nortel also sold its Global System for Mobile Communications (GSM) unit to Ericsson for

 

Turnover in the corner office

While profitable rival Cisco Systems Inc. has been headed by John Chambers since 1995, Nortel went gone through five CEOs during the same time: Jean Monty, John Roth, Frank Dunn, Bill Owens, and Mike Zafirovski.

Monty had a long history as a senior BCE executive, Roth had been an engineer with Nortel since 1969, Dunn was a financial expert who later got in trouble over the accounting, Owens was a former U.S. Navy admiral and Zafirovski was brought in from Motorola Inc.

Zafirovski resigned last year, turning the company over to chief restructuring officer Pavi Binning.

 

Dunn was dismissed with cause by the board of directors in 2004 and later charged by the Royal Canadian Mounted Police with fraud affecting public market, falsification of books and documents and false prospectus. The charges have yet to be proven in court.

Although Nortel has sold off its major operations, the company is still operating. While it was widely reported last summer that Ericsson is getting Nortel’s LTE wireless patents, this is false. Ericsson will get a non-exclusive license to those patents.

Commons hearing

Several Members of Parliament asked about the patents during the House of Commons industry committee meeting.

During testimony before the committee in August, Nortel chief strategy officer George Riedel said officials were “reviewing a number of options” for the assets they were not selling.

Anthony Rota, the Liberal Member of Parliament for Nipissing-Timiskaming, asked whether Nortel will continue to exist a research firm that license patents.

Riedel testified that the “principal businesses of Nortel will be sold,” adding he expects bids to be placed by the third quarter.
Although Riedel replied that the “principal businesses of Nortel will be sold,” he added that “no process (had) been put forward to deal with” the patents.

Either way, it’s the end of Nortel as we know it.
 

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