Thursday, January 15, 2009

Is Nortel a Victim of the Global Financial Crisis?

Some would paint Nortel as a company that was on the verge of making a big turn around, but was blindsided by the financial crisis. If only the credit markets were in better shape, Nortel wouldn’t have been forced into bankruptcy.

There is some truth to this point of view, but not much. To draw an analogy, when a very old and weak man gets the flu or pneumonia and dies, we can say that he would not have died if he hadn’t become sick. But he was in such a weakened state that any added sickness would end his life. This is how it is with Nortel.

As a shareholder myself, I used to hold out hope for Nortel to recover, but it’s important to be realistic. To see how weak Nortel had become, you just have to look at its earnings history. I dug through old Nortel annual reports and tried to resolve all the inconsistencies from the earnings restatements to produce this history:

Nortel Earnings ($ millions)

2008 (first 3 quarters): -3664
2007: -957
2006: +28
2005: -2610
2004: -247
2003: +276
2002: -3064
2001: -25,720
2000: -3470
1999: -351
1998: -569
1997: +812
1996: +619
1995: +469
1994: +404

Results up to 1997 looked good, and then the wheels fell off. Over these nearly 15 years, Nortel’s net loss is a little over $38 billion! Nortel’s business has been terrible for more than a decade. To say that the credit crisis caused Nortel’s problems is highly misleading.

After the bankruptcy filing, Nortel’s share price dropped to 12 cents (Canadian). Taking into account the reverse share split, this is down 10,000 times from its peak! This is a truly low point for Nortel investors.

1 comment:

  1. Nortel had not build the product that customer want and did not keep the soho product meet customer requirement this kinds of product help to get hold project be nortel and win the big project that's nortel mistaken.

    Nortel did not focus on broadband as M-SAN and Solf switch market in Asia.

    What the Nortel done in marketing is "Nothing"