Nortel files for bankruptcy: What you need to know

Nortel has officially filed for bankruptcy in a bid to be on "sound financial footing once and for all."In a statement, Nortel detailed its bankruptcy filing.
Written by Larry Dignan, Contributor

Nortel has officially filed for bankruptcy in a bid to be on "sound financial footing once and for all."

In a statement, Nortel detailed its bankruptcy filing. And while it's unlikely that Nortel will garner new customers it has a lot of existing ones that may be worried.

Here's what you need to know:

  • Nortel has filed Chapter 11 bankruptcy proceedings and will restructure accordingly;
  • Nortel will continue daily operations as usual;
  • The company cut a deal with Flextronics, its contract equipment manufacturer, to maintain its supply chain. Nortel has agreed to buy $120 million in existing inventory by July 1. Nortel will also make other inventory purchase quarterly. Translation: Nortel has an inventory glut to work through. Flextronics has terminated some parts of its Nortel contract effective in July.
  • The company said it will continue to support its products and continue to invest in research and development.
  • The upshot is that not a lot will change initially under this bankruptcy proceeding for existing customers.

What's unclear is whether the company will be split up in parts as previous reports have noted. Nortel did say that it will "deal decisively with its cost and debt burden, to effectively restructure its operations and to narrow its strategic focus in an effective and timely manner."

Depending on its focus, Nortel is likely to unload a few divisions and seems to be eyeing bankruptcy as the most effective means to restructure. The company has been limping for years anyway.

Nortel CEO Zafirovski said:

"These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology and customer relationships show it ought to be.  I am confident that the actions we're announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D and technology leadership into long-term success. I want to reaffirm Nortel's dedication to delivering world-class solutions and services to customers."

Editorial standards