Nortel Goes Kaput

Nortel Networks Corp. (NT) filed for bankruptcy protection on Wednesday, putting an end to its long struggle in the face of declining sales that was only exacerbated by the global economic crisis. North America’s biggest telephone equipment maker has seen a steady downfall since the sale of its high-speed mobile-phone unit to Alcatel (ALU) in 2006, as it failed to match pace with the changing trends in the telecommunications industry.

The Toronto-based company had more than $4.5 billion in long-term debt, according to a Chapter 11 filing of its U.S. subsidiary in the Bankruptcy Court for the District of Delaware (Wilmington). Once Canada’s largest company, Nortel lost out in the struggle for supremacy to rivals like Cisco (CSCO), Juniper Networks (JNPR) and Ericsson (ERIC) after the tech bubble burst at the start of the decade.

Last November, Nortel reported a third-quarter loss of $3.4 billion, slashed its 2008 outlook, cut jobs and said it would review its real estate portfolio. Sluggish business increasingly brought the company’s cash position and liquidity under serious pressure, finally leading to today’s filing. Nortel was due to make an interest payment of about $107 million tomorrow.

As it became progressively more difficult to secure financing after the failure of Lehman Brothers, Nortel was left with the single and dire choice of seeking bankruptcy protection and trying to save the company by restructuring its operations and dealing with its debt burden.

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