Fallout: The Financial Crisis

Nortel goes from bubble to bankruptcy

Janet Babin Jan 14, 2009
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Fallout: The Financial Crisis

Nortel goes from bubble to bankruptcy

Janet Babin Jan 14, 2009
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TEXT OF STORY

KAI RYSSDAL: Change came relatively quickly for Citigroup. Not so for Nortel Networks. The telecommunications firm has been trying to stage a comeback since the dot-com bust. But the good fight ended today when Nortel for bankruptcy protection. Marketplace’s Janet Babin reports now from the Innovations Desk at North Carolina Public Radio.


JANET BABIN: You might not be familiar with the Nortel logo, or even know what the company does. But Carmi Levy at AR Communications says Nortel’s an integral part of modern connectivity.

Carmi Levy: Every single activity that you do through phone, through television, through Internet, at some point uses Nortel technology. And so this will have a huge impact.

The 112-year old company is North America’s biggest maker of telephone equipment — Toronto’s shining example of telecom excellence.

But just like a gadget geek hooked on the latest mobile app, Nortel spent with wild abandon during the dot-com bubble. Analyst Brian Modoff with Deutsche Bank says Nortel’s debt piled up high, and the recession took it over the edge.

Brian Modoff: This is a company that massively overpaid for other companies during the bubble, which ruined their balance sheet. They went through a series of restructurings that were never quite enough.

But it wasn’t just finances.

Nortel messed up the technical manual, despite a heavy R&D budget. Analyst Mark McKechnie at Broadpoint AmTech says it picked the wrong mobile networking technology — 4G instead of the more popular 3G.

Mark McKechnie: Product cycles in telecom are eight years long. If you miss a product cycle in telecom, it’s going to take you a long time to come back.

If you come back at all. Nortel says the restructuring will help strengthen business. It could seek a government bailout, or just wait for offers from competitors eager to scoop up what’s left of a legacy.

I’m Janet Babin for Marketplace.

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