Nortel ( NT)'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) has already scooped up Nortel's switch business for an undisclosed fee, and the company's carve-up may continue.
Citing people familiar with the matter, the Journal reports that Nortel has been able to attract interest in the sale of its core wireless business and a separate enterprise unit that builds telecom equipment for offices. Selling the wireless business, which generates the bulk of the company's cash, could, however, complicate any plans for Nortel to emerge from bankruptcy as a standalone company. "If they sell these 2 units, what's left? It will not be Nortel as we have known it," wrote Vanessa Alvarez, an analyst at technology research firm Frost & Sullivan, in an email to TheStreet.com. "Nortel is like a snowman, melting away its businesses." The analyst explained that Nortel's wireless sale would make sense, particularly considering its exit from the WiMAX market earlier this year, and added that the firm is more focused on legacy CDMA technology than next-generation wireless. Other observers were even more forthright in their assessment of the company's long-term prospects, saying that Nortel has already crossed the Rubicon. "This is a dead company," said a former Nortel executive, who asked not to be named, adding that Nortel has little option but to sell its wireless business. Last month, for example, Nortel suffered an apparent setback when it was overlooked in favor of Alcatel-Lucent ( ALU) and Ericsson to provide the next-generation LTE Network for Verizon ( VZ), one of its key customers. Even Nortel's enterprise business is unlikely to offer salvation, according to the company's former executive. "Any attempt by Nortel to attempt to exit Chapter 11 as a company focusing on a segment of the enterprise market will fail," he said. "There is no way that they can compete against Cisco, Huawei, Avaya, HP, or Juniper." A number of companies have expressed an interest in buying Nortel's enterprise business, according to the Journal, including Avaya and Siemens ( SI), although the telecom manufacturer refused to comment on this when contacted by TheStreet.com. In its recent fourth quarter, Nortel's revenue plunged 15% year-over-year to $2.72 billion, although this was a 17% increase on the prior quarter. Carrier networks accounted for the bulk of Nortel's sales with $1.23 billion, although this was 8% less than the prior year's quarter. Enterprise solutions were the next biggest revenue stream, bringing in $535 million, 30% down on the same period last year. "Nortel's enterprise business was the second biggest revenue generating division, but had a substantial loss in the third and fourth quarter of 2008," explained Frost & Sullivan's Alvarez. "A year ago, I would have liked to see the enterprise business spun off, and had it stand on its own, but now, I don't foresee that helping or happening." Nortel is also reportedly in talks to sell the unit that sells wireless voice gear to rivals, including Nokia Siemens Networks, which has long sought to expand its presence in the U.S.