Nortel Networks (NT) claims to have taken a major step on the comeback trail this week, although a big question mark still hangs over the company's long-term strategy.

The Ontario Superior Court of Justice granted a request to extend Nortel's creditor protection Tuesday, and the firm now has a stay of proceedings until May 1.

Nortel also obtained an order from the Canadian court allowing it to postpone its annual general meeting for shareholders.

"The postponement will allow Nortel's senior management to fully focus on the preparation of Nortel's comprehensive restructuring plan and avoid the significant costs associated with annual shareholders' meetings," the company said, in a statement.

Nortel's endgame, however, remains something of a mystery. The firm, which

suspended

the sale of its key metro Ethernet networks division last week, promised only that it will emerge from creditor protection "a more focused and competitive company" in an email to

TheStreet.com

.

Ernst & Young

, which is monitoring Nortel's restructuring, gave a glimpse into the company's overhaul in a recent report to the Canadian court. Cost-cutting efforts include a "detailed plan" for a reduction of Nortel's global workforce, a review of real estate, property and IT equipment leases and cuts in discretionary spending, it said.

Clearly, the next few months could either make or break Nortel, which continues to elicit extreme reactions across the tech sector.

Depending on whom you speak to, Nortel is either valiantly working its way through incredibly difficult circumstances or teetering on the brink of oblivion.

A former Nortel executive, who asked not to be named, warns that the odds are stacked

against

the Toronto, Ontario-based outfit. Nortel, he claims, lacks product leadership, and its Chapter 11 will hardly boost confidence among customers and distributors.

"It's not a good recipe for moving forward in this environment," he said, explaining that Nortel is also weighed down by its broad product portfolio, encompassing optical networks, wireless, security, and Local Area Networks (LANs). "Nokia, Cisco, Huawei, they pick their areas," he said.

The same rivals are already circling Nortel's customers. "You have got competitors seriously targeting them," he added, alluding to the

threat

posed

by

Cisco

(CSCO) - Get Report

,

F5 Networks

(FFIV) - Get Report

,

Huawei

,

Akamai

(AKAM) - Get Report

and others.

Hewlett-Packard

(HPQ) - Get Report

, for example, is already exploiting Nortel's predicament, according to Mark Thompson, worldwide director of sales strategy for the tech giant's ProCurve networking business.

"We're certainly running some marketing programs to generate awareness with current Nortel customers," he told

TheStreet.com

. "One of the reasons that we get to talk to them is that they are concerned."

Nortel, which has been wrestling with

plummeting sales

of its wireless gear, announced plans to

divest

its metro Ethernet networks division in September, although this is now on ice. More recently, the firm

discontinued

its mobile WiMAX operations in an attempt to streamline its business.

"I know bankruptcy protection means technically they can still turn it around, but given the state of the economy, combined with aggressive competition, Nortel is facing bigger issues than it could possibly handle," warned Vanessa Alvarez, an analyst at technology research firm

Frost & Sullivan

. "In my opinion, Nortel should spin off the enterprise business, perhaps one of the more viable businesses in the organization."

Despite its detractors, at least one Nortel partner feels that the telecom company still has a bright future, thanks largely to its product line.

"In the enterprise space, Nortel's products and applications are second to none," said Eric Gilmore, president of San Diego, Calif.-based

Packet Telecom

, explaining that the firm is well positioned in Unified Communications (UC), which links traditional telephony with email and messaging.

"Nortel's huge base of legacy customers in North America can seamlessly and cost-effectively migrate into IP and UC," he said. "Nortel will be aggressive in targeting to migrate this base into new technology."

Gilmore also lauded the company's high-end Ethernet switches and the "openness" of Nortel's technology compared to other telecom equipment manufacturers. The firm's Software Communication System (SCS) 500 solution, for example, works with a slew of servers from

IBM

(IBM) - Get Report

, H-P,

Dell

(DELL) - Get Report

and others, he said.

"The net of this is that Nortel has great offerings with real value," added Gilmore. "They have made major changes in internal business structure, processes and supply chain to reduce costs and improve efficiencies."

Nortel, which has $2.4 billion in cash, has already sought to reassure customers that it will regain solid financial footing. In a recent note to customers, for example, the firm explained that its enterprise business remains strong.

"Revenues for 2008 YTD through September 30 were the same as in 2007, and a key segment for voice grew 8% during the same period," it said.

Nortel's

problems

can be traced all the way back to the Internet building boom; the firm was crushed when the industry was left with an oversupply of telcos and network capacity.

A subsequent

accounting scandal

swept out nearly all of the firm's executives and board members and led to the hiring of Mike Zafirovski, former No. 2 at

Motorola

(MOT)

, who has until May to get Nortel back on track.