Nortel Networks May End Up in Pieces

Nortel(NT Quote)'s chances of emerging from bankruptcy as planned are becoming increasingly slim, say telecom industry sources, despite the company's promise to rise, phoenix-like, from Chapter 11.

The Toronto-Ontario-based firm is in talks to sell off its two main businesses, according to The Wall Street Journal, suggesting that the firm may break itself up rather than emerge from bankruptcy as planned.

Nortel filed for protection from creditors in January in a last-ditch attempt to get its house in order after a turbulent period characterized by falling sales, a financial scandal and massive internal upheaval.

The company was one of the top suppliers to the Internet building boom at the turn of the century but was later crushed after the bust when the industry was left with an oversupply of telcos and network capacity.

Nortel aims to emerge from its creditor protection as a "highly focused and financially sound communications leader," according to a statement released last month by its CEO Mike Zafirovski, and hopes to reveal its long-term plans in April or May.

The troubled telecom equipment manufacturer initially attempted to sell off its metro Ethernet networks business, only to suspend the sale earlier this year.

"I don't think that they are going to come through [Chapter 11 as planned]; I think they have spiraled too far," said an analyst, who asked not to be named. "Even if they re-emerge in Ethernet, that's already a crowded sector -- I think that everyone has stayed on the sidelines waiting for a fire-sale to start."

Israeli network specialist Radware(RDWR Quote) has already scooped up Nortel's switch business for an undisclosed fee, and the company's carve-up may continue.