Nortel Bankruptcy FilingNortel Bankruptcy Filing

There are many instances where companies emerged from bankruptcy filings a stronger, but there are even more instances where the company never recaptured past glories and eventually faded from the scene.

Nortel has announced that it is filing for creditor protection in Canada, the United States and Europe in order to undertake a comprehensive business and financial restructuring. According to Mike Zafirovski, President and CEO, Nortel, these actions are being taken to enable Nortel to become the focused and financially sound communications leader it should be. Apologies to Mr. Zafirovski, but there are no guarantees that bankruptcy filings will enable Nortel to become the industry leader it once was, or to emerge a financially sound entity.The market perception of companies who file for bankruptcy is less than stellar. Although the current economic environment may have played a role in Nortel's broken financial situation, the seeds were planted several years ago when the economy was going great guns. Nortel's been on a downward trend since the Internet bubble burst many years ago, with its current market capitalization a very small fraction (emphasize the term very small) of its peak at the beginning of this decade.

More than a few Nortel clients and dealers have been scrambling to seek alternative suppliers of product should the company collapse completely as an ongoing and viable supplier. Enterprise customers have many competitive choices to replace their installed Nortel product and dealers are in the driver's seat today, because prime distribution space is at a premium when traditional direct sales/service suppliers like Avaya and Siemens are seeking to expand third-party channel outlets and new suppliers like Microsoft enter the market.

Although Nortel's technology and products are solid, its financial situation poses a risk to customers, because the future of the company is unclear. Will Nortel be forced to sell off more parts of its organization than are currently under discussion (Metro Ethernet)? Will employee downsizing be a concern for support services? Will long term investments like R&D be curtailed? There are many instances where companies emerged from bankruptcy filings a stronger and financially sound entity, but there are even more instances where the company never recaptured past glories and eventually faded from the scene. Which one will Nortel be? Only time will tell.There are many instances where companies emerged from bankruptcy filings a stronger, but there are even more instances where the company never recaptured past glories and eventually faded from the scene.