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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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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.

"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)

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