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Nortel stock free falls losing 60% Wednesday

As the poor economic climate of 2008 spills over into 2009, things aren’t getting better for most technology companies. In fact, for many technology firms, things are getting worse. One of the latest companies to be placed under extreme financial stress in the current global economy is Nortel.

Reuters reports that Nortel has filed for Chapter 11 bankruptcy protection in the U.S. to give it time to reorganize in an attempt to save itself from extinction. Nortel has also filed for protection in Canada and its European subsidiaries are also expected to make similar filings.

Nortel is one of the largest employers in Canada and was once of the most traded and secure stocks on the Canadian stock market during its heyday in the late '90's. The massive firm has been struggling in the face of increased competition from companies in the U.S. and abroad. The firm had warned last month, according to Reuters, that it was under increasing pressure and that its cash position and liquidity were deteriorating.

Reuters quotes Gavin Graham from BMO Asset Management in Toronto saying, "It's obviously a remarkable transformation from where it was as the largest company in Canada worth about 35 percent of the (Toronto Stock Exchange) in 2000. But this is a reflection of the way that the telecommunications industry has changed."

The poor economy has seen many large corporations slash the budget allotted for the equipment that Nortel manufacturers. The sharp slowdown in key areas like U.S. sales has pushed Nortel to bankruptcy filing.

In its heyday, Nortel stock traded for over C$1,100 in late 2006. Wednesday the firm's stock plummeted over 60% to close at only C$0.15 per share on the Toronto Stock Exchange. According to the exchange, it is looking at the stock for delisting at this time.

Nortel hopes that the bankruptcy filing will give it time to reorganize and shed assets in an attempt to remain solvent. UBS analyst Nikos Theodosopoulos said, "They're avoiding a slow death by doing this. The company is going to have to sell assets and change its focus. It's not going to be the same company."

Nortel filed for bankruptcy protection the day before an interest payment of $107 million was due. DSAM analyst Duncan Stewart said, "Based on this filing, the board of directors must believe that not only is the fourth quarter bad, but that the first quarter is going to be just as bad or worse."

Stewart says that Nortel may have enough cash on hand for short term, but the medium and long term operations aren’t viable. Canada's government has said it will help Nortel, which is a huge part of the Canadian business world with 32,000 employees. The government will offer Nortel C$30 million in short-term financing.

According to the filings, Nortel's biggest debtor is the Bank of New York Mellon with claims of about $4 billion USD. Another key debtor is one of Nortel's main suppliers, Flextronics. Exactly how much Nortel debt Flextronics holds is unknown. Part of Nortel's restructuring will undoubtedly be more layoffs added to the 1,300 cut jobs it announced in November 2008.

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By theendofallsongs on 1/15/2009 11:01:37 AM , Rating: 2
Time for another bailout. Think of all the JOBS that will be lost if we dont pony up a few more billions. Oh the horror!

RE: Well...
By SunAngel on 1/15/2009 11:28:27 AM , Rating: 1
Still not a believer your going to fall victim to the bad economy one day?

I respect your optimism. Hopefully it will not happen to you.

Consequently if it does, don't hop off the wagon and say "yeah, I should have listened. can someone help me please?", it will be too late.

RE: Well...
By Fanon on 1/15/2009 11:38:05 AM , Rating: 5
There are two options:

1. Keep a bad business plan afloat for X number of years, prolonging its inevitable death while giving the government yet something else it can control.

2. File, restructure, and start with a new plan.

Option 2 is always the better choice.

RE: Well...
By crleap on 1/15/2009 11:44:31 AM , Rating: 5
Governments need to stop giving companies money. Like the US bailing out the auto and finance industries, that continue to screw the general population that doesnt work for them for every penny they can "justify". If the govt wants to use tax dollars to support people, they need to support EVERYONE. Last year's stimulus didnt do much, but at least it was distributed to every taxpayer. Not just pumping into industries that a minority work in, and have worked in for super-inflated wages for decades. Sorry, I want my tax dollars to benefit me too. Not just lazy UAW workers.

RE: Well...
By Chaser on 1/15/2009 11:54:33 AM , Rating: 5
The so called stimulus package was an absolute joke. Most of it went to people that don't even pay taxes. In that perspective it was another name for a welfare check courtesy of those that pay taxes.

Now our president elect is pushing for yet another stimulus package despite there being no evidence the first one accomplished anything positive towards the economy that it was supposed to stimulate.

History has shown that the great depression was not only a result of the economy dive back then but rather the economic meddling Washington DC did to try and "fix" it.

Government needs to stay out of the economy as much as possible. the U.S. is a strong, resilient country and it will heal itself without power hungry, inexperienced politicians making knee jerk decisions on TRILLIONS of our dollars.

RE: Well...
By Oregonian2 on 1/15/2009 4:33:43 PM , Rating: 2
The so called stimulus package was an absolute joke. Most of it went to people that don't even pay taxes.

I'd be surprised if that were true. Those who don't pay taxes are those who likely to have spent the money -- and the big criticism I've seen of the stimulus package is that way too much of the money was put into savings (which doesn't help the situation).

RE: Well...
By Nfarce on 1/15/2009 6:13:54 PM , Rating: 3
Actually his statement is more accurate than inaccurate. Let's look at the facts from the IRS in 2006:

1) The bottom 50% of federal income tax payers (those making <$31,987) paid 3% of all federal income tax from US citizens.

2) The top 10% (those making >$108,904) paid 71% of all federal income tax from US citizens.

3) The middle 40% (those making >$31,987 but <$108,904) paid 27% of all federal income tax from US citizens.

Here is a description and example from the IRS on how the stimulus check was dolled out:

The stimulus payment –– both the basic component and the additional funds for qualifying children –– begins to phase out for individuals with adjusted gross incomes (AGI) over $75,000 and married couples who file a joint return with AGI over $150,000. The combined payment is reduced by 5 percent of the income above the AGI thresholds.

An individual with AGI of $80,000 and federal income tax liability in excess of $600 would qualify for a basic rebate of $600. Because this individual’s AGI exceeds $75,000, however, her rebate is reduced by $250 (the credit is reduced by multiplying the amount of AGI over $75,000 by 5%). The taxpayer receives an economic stimulus payment of $350.

So you see, the more money you made, the less you got back up to a point where you got zero . Going backwards in income, even if you reported zero or negative income, you still could get a stimulus check under certain circumstances.

Based on who pays what in income taxes I listed above, again, I'd say he was more correct than incorrect. A more accurate statement would have been something like: "Those who paid less in federal income taxes enjoyed the benefits of the stimulus check than those who paid more in income taxes."

RE: Well...
By Nfarce on 1/15/2009 6:18:40 PM , Rating: 2
Oops, let's try this again:

"Those who paid less in federal income taxes enjoyed the benefits of the stimulus check more than those who paid more in income taxes."

RE: Well...
By mofo3k on 1/15/2009 11:47:22 AM , Rating: 2
In Nortel's case, option 2 has been needed for a number of years. Their phone systems have been really bad for a while and their support is absolutely atrocious. This gives my employer another great reason to sell Mitel's to our customers.

RE: Well...
By Gzus666 on 1/15/2009 11:58:37 AM , Rating: 2
This is true. My pop complains about all this stuff all the time (he does VoIP and general phone installs, setup and support for them). I knew they were in trouble 6 months ago by listening to him yell about it all the time, ha. Hopefully the restructuring will finally make them realize they need to get back to doing things correctly.

RE: Well...
By Reclaimer77 on 1/15/2009 6:51:41 PM , Rating: 1
I knew they were in trouble 6 months ago by listening to him yell about it all the time

Was that before or after he would get boozed up and beat the shit out of you and mom ?

RE: Well...
By Gzus666 on 1/16/2009 11:23:00 AM , Rating: 1
Was that before or after he would get boozed up and beat the shit out of you and mom ?

I think you are confusing my family with yours.

RE: Well...
By mmntech on 1/15/2009 12:03:46 PM , Rating: 2
Nortel is one of those companies that's been circling the drain for years now. The media makes it out like this has happened suddenly. However, Nortel has been like this for the last 20 years anyway by my count. They've supposedly been restructuring the company for the last 10 years. It's all due to bad management. This is the case with most large companies who are failing during this recession.

RE: Well...
By Gzus666 on 1/15/2009 12:06:13 PM , Rating: 2
Well, it hasn't been the last 20 years, they did really well in the 90s. They had problems due to HORRIBLE management. They are either retarded or just don't care from what I have seen and heard. Also all those crooked CEOs didn't help either. Hopefully they restructure and come back strong.

RE: Well...
By omnicronx on 1/15/2009 12:27:39 PM , Rating: 2
8 years really, Nortel was top class until 2001.

RE: Well...
By Aloonatic on 1/15/2009 11:36:14 AM , Rating: 2
The whole bail out thing is getting a bit silly.

At least you aren't being told that you need bail out firms that your government has effectively been trying to put out of business for the last couple of years.

I am of course referring to Jaguar Land Rover who's evil polluting "gas guzzling" cars and 4x4s have been characterised as the most evil forms of transport since Hitler's staff car and as such should be taxed more and more so that people don't want to buy them and buy a more environmentally friendly cars.

Sure enough, they are too expensive now and people are not buying these cars so we are told that the tax payer needs to bail them out?

Welcome to the crazy world of Gordon Brown and his odd economic policies.

None of the above taxation policies had anything to do with "New" Labour actually just being a good old fashioned tax and spend socialist party of course, he taxed those big cars to save polar bears and what have you, honest.

/ Rant about UK politics and Chairman Brown that means nothing to 99% of people reading this as you live outside of the UK.

RE: Well...
By HrilL on 1/15/2009 4:37:09 PM , Rating: 2
Wait till you get laid off. I was laid off a few weeks ago and as a part time employee I can't get unemployment. While I don't think bail outs should be used at all. It does suck to not have work and not being able to find a job better than retail or fast food is horrible. This coming from someone with 6 years in IT and there is no IT jobs. They are usually the first to go in a lot of companies.

RE: Well...
By Smilin on 1/15/2009 5:04:39 PM , Rating: 2
Nobody said anything about a bailout.

...but thanks for being an ass about someone losing their job.

"There is a single light of science, and to brighten it anywhere is to brighten it everywhere." -- Isaac Asimov

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