Nortel gasps for breath after a decade of setbacks

OTTAWA (Reuters) - Once the prize jewel in Canada's corporate crown, Nortel Networks Corp has finally taken refuge in a bankruptcy filing after years of struggling to catch up with a fast-changing industry.

A corporate icon with roots as old as the telephone itself, Nortel made prescient wagers on wireless and fiber-optic technology to become the country's biggest and most talked-about stock during the dot-com boom years.

But shares of the one-time high-tech titan, worth more than C$1,100 apiece in mid-2000, had been relegated to penny-stock status by the time Nortel announced its Chapter 11 filing on Wednesday.

"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," the Ontario-based maker of the ubiquitous BlackBerry smartphone.

At its peak in 2000, Nortel reported about $30 billion of annual revenue and had a market capitalization of $250 billion.

Nortel, by far Canada's biggest R&D spender in fiscal 2007 with a $1.85 billion budget, owns a sprawling 2-million square-foot research campus in the Canadian capital of Ottawa and it's the city's largest private-sector employer.

But it has struggled to keep pace with game-changing shifts in a sector rocked by consolidation, low-cost Asian rivals and a sharp slowdown in spending by customers.

"The whole industry has been going through a severe restructuring that began in the mid '90s and Nortel is a casualty of that," said Eamon Hoey, senior partner and telecommunications consultant at Hoey and Associates in Toronto.

"It's not without some degree of criticism (for Nortel) -- they were not just caught in the downdraft."

RBC analyst Mark Sue raised key questions about Nortel's future in November, when he cut his stock target to zero in a report called "The Last One."

"Nortel has $2.65 billion in cash but is overwhelmed with debt and burning cash," he said at the time. "The world moved on while Nortel was stuck in restructuring mode."

Dubbed by some analysts as death by a thousand cuts, Nortel has slashed jobs from a peak of 95,000 staff to 32,000 today and shuttered offices and plants around the world.

FEELING VULNERABLE

Despite the filing, it looked like business as usual on Wednesday at the Ottawa R&D complex. The parking lots were full but only a couple of employees ventured outside into the extreme cold and snow during lunch hour.

"It's a sad day," said one man, shrugging his shoulders and claiming to have not had any prior warning of the news. He said Nortel had instructed staff not to talk to the media.

A young software designer who declined to be named said he had been bracing for the worst even before the bankruptcy filing.

"It was expected. It was either today or in the next few months," he said.

Asked if he felt his job was safe, he said: "Not really. I never felt like that," referring to his three years there.

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 the analyst at DSAM Consulting.

"When you're in a canoe, maybe you can bail it out. When you're on the Titanic, it doesn't matter," he said.

Nortel's woes worsened in 2003 when the company said it needed to restate results to fix accounting errors. It 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.

(Additional reporting by Louise Egan; Editing by Frank McGurty)