Nortel looks to be worth more dead than alive

OTTAWA (Reuters) - Nortel Networks Corp, for years a wallflower as rivals in the telecom-equipment business paired up, has found new popularity now that it's in bankruptcy.

The first of Nortel's parts to be sold off, the wireless technology unit alone has attracted at least three bids ranging from $650 million to $730 million. It is set to be auctioned on Friday.

European telecom equipment makers Ericsson and Nokia Siemens have made offers, along with U.S. private equity firm MatlinPatterson.

Canada's Research In Motion Ltd, maker of the BlackBerry, is protesting the process, saying it has effectively been blocked from making a $1.1 billion bid.

"There's a lot of delicious irony associated with what's happening now," said Carmi Levy, an independent technology analyst. "Everybody shows up for the funeral, but no one goes to visit the patients in hospital before they actually die."

Nortel, once the jewel in Canada's corporate crown and by far the biggest company on the Toronto Stock Exchange, filed for bankruptcy protection in January.

Hit by a long-term spending slowdown among its customers and wounded by low-cost Asian competition, the research powerhouse had failed to keep pace over the past decade with an industry that had been transformed by the creation of mega-rivals with which Nortel found it difficult to compete.

Weak demand for Nortel equipment crumbled further after the company announced in January it was filing for creditor protection. Its first-quarter loss more than tripled to $507 million as sales plunged 37 percent to $1.7 billion.

STRATEGIC BLUNDERS

The current heated interest in Nortel assets demonstrates the company's R&D might, but it also underscores its big strategic blunders, Levy said.

"When you're restructuring, learn which horse to back and don't back the wrong one," he said.

In 2006, Nortel sold off 3G wireless operations that had been poised for growth because it did not expect to lead that market. That left the company with equipment for a waning wireless standard and doing R&D on standards that have not yet been adopted, the analyst said.

With roots as old as the telephone itself, Nortel had made prescient wagers in the past on wireless and fiber-optic technology and had become Canada's biggest and most talked-about stock during the dot-com boom years.

Its shares were worth more than C$1,100 apiece in mid-2000 but by the time Nortel announced its Chapter 11 filing they had collapsed to penny-stock status. Customers joined the investor exodus as uncertainty swirled around the company's future.

"You cannot be in perpetual restructure mode and you cannot change your restructuring strategy on a whim," Levy said.

"It was almost a squirrel-like leadership strategy (at Nortel) - look here, look there - you almost can't focus on one spot for too long."

The strategy was toxic when mixed with Nortel's ultra-conservative customers, who make multi-year, multibillion-dollar bets with their purchases, Levy said.

At its peak in 2000, Nortel reported about $30 billion of annual revenue and had a market capitalization of $250 billion. In fiscal 2008, it still spent $1.57 billion on R&D, making it Canada's biggest research spender.

In what has been dubbed by some analysts as death by a thousand cuts, Nortel has slashed jobs from a peak of 95,000 staff to what a company spokesman said is about 25,000 today, and shut down offices and plants around the world.

The company's troubles began in 2001, when demand for its telecommunications and computer equipment slumped, triggering earnings warnings, a collapsing stock and big cost cuts.

Duncan Stewart, an analyst who has followed Nortel for 20 years, said the company's downfall stems from an abrupt drop in prices for its equipment, rather than management stumbles.

"Blaming Nortel executives for failing to foresee the unraveling of the telecom equipment world is like blaming dinosaurs for not anticipating the impact of the meteor strike that changed the planet's climate," said Stewart, an analyst at DSAM Consulting.

Nortel's woes worsened in 2003 when the company said it needed to restate results to fix accounting errors. That was the first in a string of accounting revisions, which ultimately led to an executive purge and settlement payments of about $2.5 billion.

Some observers say that Nortel was so preoccupied with washing away the stain from its accounting scandal that it failed to keep pace with changes in its industry.

"It's sad to see a Canadian flagship going down," said Amit Kaminer, an analyst at telecoms consultancy Seabord Group. "It's going to be lonelier at the top for Research In Motion."

($1=$1.09 Canadian)

(Reporting by Susan Taylor; editing by Peter Galloway)