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Thu 15 Jan 2009 12:00 PM

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Nortel files for bankruptcy

Vendor insists action will give it “sound financial footing” but no word on how it will affect operations in the Middle East

Nortel, North America’s largest telephone equipment maker filed for bankruptcy yesterday after enduring a turbulent year which has seen its share price fall from just over US$12 to $0.22.

Nortel filed a voluntary petition in the United States under chapter 11 of the US Bankruptcy Code. Accountants Ernst and Young have been appointed as administrators of each of the Europe, Middle East and Africa (EMEA) companies under the UK’s Insolvency Act, on the basis that each EMEA subsidiary’s centre of main interests is in England.

In October, Nortel’s president for Southern Europe, the Middle East and Africa, Michel Clement, said that the Canadian vendor viewed the Middle East as “a key growth area”, and said it was looking to implement expansion plans in the UAE, Saudi Arabia, Bahrain and Kuwait.

At present it is unclear how the action will affect its operations in the Middle East, but Nortel President and CEO Mike Zafirovski said the action would put Nortel’s business “on a sound financial footing once and for all".

Senior ABI Research analyst Nadine Manjaro said it was not a surprise that Nortel had filed for bankruptcy.

“The company has not been doing well for several quarters due to declining CDMA business which was one of the company's primary business segments. In addition, North America is the company's largest market and most of the major operators in this market such as Sprint Nextel, Verizon Wireless, Telus, Bell Mobility, Alltel, Leap have already deployed their third generation mobile networks and have been planning migration to non-CDMA 4G networks such as LTE and WiMAX.

“Nortel is not a strong vendor in either technology due to the wavering direction of its next generation infrastructure strategy,” Manjaro added.

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