Analyst raises concerns over Nortel's liquidity

TORONTO, Oct 27 (Reuters) - Nortel Networks Corp NT.TO NT.N will likely have to initiate more drastic restructuring efforts to sustain itself through the financial crisis and could encounter problems selling its metro ethernet networks business, an analyst warned on Monday.

"We are increasingly concerned about Nortel's liquidity given deteriorating conditions," UBS analyst Nikos Theodosopoulos wrote in a note to clients.

While the metro ethernet business -- which includes the company's optical and carrier ethernet technology for Internet infrastructure -- is still attractive, any potential buyers are likely to hoard cash given the global economic slowdown, he wrote.

Nortel first said in September it would sell the unit, which accounts for about 14 percent of its revenue, even as several analysts questioned the move.

Nortel, North America's biggest maker of telephone equipment, also said at the time it would prepare for more layoffs and cut its revenue forecasts.

"We would expect Nortel to get more aggressive with its restructuring efforts in order to prop the business model, particularly as the environment toughens," Theodosopoulos wrote.

However, he added: "The company will most likely also have to contend with cash restructuring charges, including severance, limiting the total benefit."

Since 2001, Toronto-based Nortel has lost billions of dollars, shed thousands of jobs and has been unable to turn a consistent profit because of weak demand and intense competition.

Nortel's shares fell 8 Canadian cents to C$1.51 on the Toronto Stock Exchange. They were worth more than C$1,100 each in mid-2000, adjusted for a stock consolidation that took place in late 2006.

($1=$1.29 Canadian) (Reporting by Wojtek Dabrowski; editing by Rob Wilson)