Nortel files for bankruptcy

Nortel Networks, once a high-flying telecommunications equipment maker, filed for bankruptcy protection Wednesday.

Nortel has been struggling to regain its footing since the last economic downturn in 2001 and 2002, which hit the telecommunications manufacture particularly hard. But the most recent title crunch appears to have been the death knell for the company, making it difficult for Nortel to fund its operations. At the same time, customers have also pulled back drastically on spending for the company's voice-only equipment.

For the past several months, Nortel's direction team has been trying to cut spending. The company has also put some of its assets up for sale in an attempt to survive. But mounting debt payments and a steep drop in revenue appears to h ave caught up with the company.

The most pressing issue for the company is paying the percentage on its $3.8 billion in bond debt. Nortel faced a $107 million bond interest payment this week, The Wall Street Journal reported.

While bankruptcy protection doesn't always mean the end for a company, in today's economic climate, it could prove disastrous as the already-struggling company may find it even more difficult to convince customers to buy its gear. Carmakers used this argument recently when seeking a bailout from Congress. They said that customers would be unwilling to buy cars from companies that they feared would not be around to service them.

Norte l has about $2.6 billion in cash, which some analysts have said could help it stay afloat until at least 2010. But as the company sinks deeper into trouble, many experts believe that Nortel will likely be broken apart during a Chapter 11 restructuring w ith individual businesses sold off one by one, wiping out shareholders.

In December, the New York Stock Exchange warned it would delist Nortel's stock if it couldn't get its stock to trade above $1 mini mum. Nortel is currently trading at 32 cents.

Nortel's fall from goodwill was a result of a series of strategic missteps over the years that chipped away at the company's value. In 2000, Nortel was worth about $250 billion. The company now has a market value of about $275 million.

Mike Zafirovski came on board as chief executive three years ago to help turn around the society. Initially, he had some success building profits from selling wireless gear to U.S. operators. Under his leadersh ip Nortel endowed in new technology, and the company was preparing for the next wave of wireless networks. But then the economy tanked, and phone companies started to pull back on spending, which resulted in a sharp revenue drop for Nortel.

In Sep tember, Nortel announced more cost-cutting and said it would sell some of its business units. But the company was unable to find a buyer.

Nortel isn't the only big telecommunications equipment maker to struggle. Alcatel Lucent, which has also stru ggled to get back on track after the telecommunications boom, has also struggled and announced it is restructuring its business.

Nortel is also expected to seek bankruptcy protection against creditors in its home country of Canada.

Cheers~