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
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.