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What Went Wrong at Nortel

The demise of Canadian telecom giant Nortel Networks (NT) should serve as a stark warning to other tech firms struggling through the economic downturn.

The troubled equipment maker, which has been in Chapter 11 since earlier this year, announced plans to liquidate last month, signaling the beginning of the end for the 127-year old company.

Nokia Siemens Networks has already agreed to buy part of Nortel's wireless business for $650 million, and the Canadian firm plans to sell off the rest of itself.

Nortel's downfall was certainly exacerbated by a high-profile accounting scandal and a subsequent culling of senior management, but the firm's failure is also one of bad planning and execution.

Not so many years ago, Nortel was part of a pantheon of telecom equipment providers that included Cisco (CSCO), Alcatel and Lucent. The Toronto, Ontario-based firm 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.

Core aspects of Nortel's strategy, however, still left much to be desired.

"From an M&A perspective, Nortel had a very poor execution record," Ronald Gruia, principal telecom analyst at Frost & Sullivan, told

In 1999, for example, Nortel bought Customer Relationship Management (CRM) specialist Clarify for $2.1 billion in stock, only to offload it to Amdocs (DOX) for $200 million cash two years later. And let's not forget switch giant Alteon WebSystems, which was acquired for a whopping $7.8 billion in 2000. Israeli network specialist Radware (RDWR) snapped up Nortel's Alteon switch business earlier this year in a deal rumored to be worth just $20 million.

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