Pink Sheets: NRTLQ
|Founded||Montreal, Quebec (1895)|
|Headquarters||Toronto, Ontario, Canada|
|Key people||Pavi Binning, Chief Restructuring Officer
George Riedel, Chief Strategy Officer
|Revenue||▲$10.95 billion USD (2007)|
|Employees||32,550 (February 2008)|
Nortel Networks Corporation (Pink Sheets: NRTLQ), formerly known as Northern Telecom Limited and sometimes known simply as Nortel, is a multinational telecommunications equipment manufacturer headquartered in Toronto, Ontario, Canada. On January 14, 2009, Nortel filed for protection from creditors in the United States, Canada, and the United Kingdom, in order to restructure its debt and financial obligations. In June, the company announced it no longer planned to continue operations and that it would sell off all of its business units. Nortel's CDMA wireless business and LTE access technology was sold to Ericsson; the Enterprise Solutions business unit, including the shares of Nortel Government Solutions and DiamondWare, was purchased by Avaya; CVAS (Carrier VoIP and Application Solutions) unit was sold to Genband; the Metro Ethernet Networks unit was sold to Ciena Corporation; Next Generation Packet Core Assets was sold to Hitachi Ltd.; and the GSM business was sold to Ericsson and Kapsch.
In 1882, a mechanical department was created within Bell Telephone Company of Canada to manufacture telephones and telephone equipment for Canada, due to restrictions on importing telephone equipment from the United States. In addition to phones, four years later, the department started manufacturing its first switchboard, a 50 line Standard Magneto Switchboard. The small manufacturing department expanded yearly with the growth and popularity of the telephone to 50 employees in 1888. By 1890 it transformed into its own branch of operations with 200 employees and a new factory was under construction.
As the manufacturing branch expanded, its production ability increased beyond the demand for phones, and faced closure for several months a year without manufacturing other products. This was a problem because the Bell Telephone Company of Canada charter would not allow them to build other products. So in 1895, Bell Telephone Company of Canada was required to spin off its manufacturing arm to build phones for sale to other companies as well as other devices such as fire alarm boxes, police street call boxes, and fire department call equipment. This company was incorporated as the Northern Electric and Manufacturing Company Limited.
"The Northern Electric and Manufacturing Company" Limited, was incorporated on 7 December 1895, by the following Corporate Members/Board of Directors: Charles Fleetford Sise Sr., President of Bell Telephone Company of Canada – Provisional Director; Robert Mackay, merchant – Provisional Director; Hugh Paton, manager of the Shedden Company - Provisional Director; The Hon. Joseph Rosaire Thibaudeau, Senator - Provisional Director; Robert Archer, gentleman - Provisional Director; Charles P. Sclater, secretary - Provisional Director; Lewis B. McFarlane, manager, all of the city and district of Montreal, Que.
The initial stock capital was $50,000 at $100 per share, with 93 percent held by Bell Telephone Company of Canada and the remainder held by the seven corporate members above. The first general stock holders meeting was held on March 24, 1896.
In December 1899, The Bell Telephone Company of Canada bought a cabling company for $500,000 and a Canadian charter named it The Wire and Cable Company. Northern Electric and Manufacturing further expanded its product line in 1900, manufacturing the first Canadian wind-up gramophones that played flat discs. In 1911 the Wire and Cable company changed its name to the Imperial Wire and Cable Company.
The construction of a new manufacturing plant started in 1913 at Shearer Street in Montreal, Canada, as preparations began for the integration of the two manufacturing companies. Then in January 1914 the Northern Electric and Manufacturing Company and the Imperial Wire and Cable Company merged into the Northern Electric Company, and the new company opened the doors on a new manufacturing plant on January 1915. This facility at Shearer Street was the primary manufacturing center until the mid 1950s. Edward Fleetford Sise was the president and his brother Paul Fleetford Sise was the vice-president and general manager.
During the First World War Northern Electric manufactured the Portable Commutator a one-wire telegraphic switchboard for military operations in the field. In 1922 Northern started to produce the "Peanut" vacuum tube for $5 which only required a single dry cell battery. The use of alternating current was still under development during this time. The "Northern Electric Peanut tube was the smallest tube made, and drew only one-tenth of an ampere and was the most remarkable radio frequency amplifier ever made." During the 1920s Northern Electric was making kettles, toasters, cigar lighters, electric stoves, and washing machines. In January 1923 Northern Electric started to operate a radio station with call letters CHYC, an AM radio station located in the Shearer Street plant and much of the programming was religious services for the Northern Electric employees and families in the community. On July 1923 CHYC AM radio station was the first radio station to provide entertainment to the riders of the transcontinental train in a parlor car fitted with a radio set to receive the broadcast as it left Montreal and traveled west. Later in the 1920s, Northern created the first talking movie sound system in the British Empire for a theater in Montreal.
During the great depression of the 1930s Northern Electric was affected like most other companies. From the beginning of 1930 through the end of 1933 sales dropped from $34 million to $8.2 million, and the employee headcount dropped from 6100 to a low of 2,400.
In 1949, an antitrust suit in the U.S. forced AT&T/Western Electric to sell its stake in Northern Electric to Bell Canada. Deprived of its Western Electric tie, Northern began developing its own products. In 1953, Northern Electric produced its first television sets using tubes made by RCA. Bell Canada acquired 100 percent of Northern Electric in 1964; through public stock offerings starting in 1973, Bell's ownership of Northern Electric and its successors would be reduced, though it continued to have majority control.
In 1966, the Northern Electric research lab, Northern Electric Laboratories (the predecessor to Bell-Northern Research), started looking into the possibilities of fiber optic cable, and in 1969, began work on digitizing telephone communications. Also in 1969, Northern began making inroads into the U.S. market with its switching systems. In 1972, it opened its first factory in the U.S. in Michigan. In 1975, Northern began shipping its first digital switching systems, one of the earliest such systems to be sold.
In 1976, the company name was changed to Northern Telecom Limited, and management announced its intention to concentrate the company's efforts on digital technology.
"Digital World" was Northern Telecom’s daring declaration, made public by a three-page advertisement that appeared in major trade publications in 1976, that digital technology was the key to the future. It was the first to announce, and to deliver, one year ahead of schedule, a complete line of fully digital telecommunications products under the Digital World brand. The most well-known of the Digital World product family, the DMS-100, a fully digital central office switch serving as many as 100,000 lines, was a key contributor to the company’s revenue for close to 15 years.
In 1977, Nortel introduced its DMS line of digital central office telephone switches, providing explosive growth for the company, especially after the AT&T breakup in 1984. Northern Telecom became the first non-Japanese supplier to Nippon Telegraph and Telephone, and the company took advantage of opportunities in Europe and China.
In 1983, due to deregulation, Bell Canada Enterprises (later shortened to BCE) was formed as the parent company to Bell Canada and Northern Telecom. Bell-Northern Research was jointly owned 50-50 by Bell Canada and Northern Telecom. The combined three companies were referred to as the tricorporate.
In 1998, with the acquisition of Bay Networks, the company's name was changed to Nortel Networks to emphasize its ability to provide complete solutions for multiprotocol, multiservice, global networking over the Internet and other communications networks. As a consequence of the stock transaction used to purchase Bay Networks, BCE ceased to be the majority shareholder of Nortel. In 2000, BCE spun-out Nortel, distributing its holdings of Nortel to its shareholders. Bell-Northern Research was gradually absorbed into Nortel, as it first acquired a majority share in BNR, and eventually acquired the entire company.
In the late 1990s, stock market speculators, hoping that Nortel would reap increasingly lucrative profits from the sale of fibre optic network gear, began pushing up the price of the company's shares to unheard-of levels despite the company's repeated failure to turn a profit. Under the leadership of CEO John Roth, sales of optical equipment had been robust in the late 1990s, but the market was soon saturated. When the speculative telecom bubble of the late 1990s reached its pinnacle late in the year 2000, Nortel was to become one of the most spectacular casualties.
At its height, Nortel accounted for more than a third of the total valuation of all the companies listed on the Toronto Stock Exchange (TSX), employing 94,500 worldwide, with 25,900 in Canada alone. Nortel's market capitalization fell from C$398 billion in September 2000 to less than C$5 billion in August 2002. Nortel's stock price plunged from C$124 to C$0.47. When Nortel's stock crashed, it took with it a wide swath of Canadian investors and pension funds, and left 60,000 Nortel employees unemployed. Roth was criticized after it was revealed that he cashed in his own stock options for a personal gain of C$135 million in 2000 alone.
CEO John Roth retired under controversy in 2001 and was succeeded by CFO Frank Dunn. Dunn presided over a dramatic restructuring of Nortel, which included laying off two-thirds of its workforce (60,000 staff) and write downs of nearly US$16 billion in 2001 alone. This had some initial perceived success in turning the company around, with an unexpected return to profitability reported in the first quarter of 2003. The black ink triggered a total of US$19 million in bonuses to the top 43 managers, with US$5 million alone going to Dunn, chief financial officer Douglas Beatty, and controller Michael Gollogly. Independent auditor Deloitte & Touche advised audit committee chairman John Cleghorn and board chairman "Red" Wilson to look into the suspicious results, who promptly hired the law firm WilmerHale to vet the financial statements. Nortel spent an estimated US$400 million on outside auditors and management consultants to retain staff. In late October 2003, Nortel announced that it intended to restate approximately $900M of liabilities carried on its previously reported balance sheet as of June 30, 2003, following a comprehensive internal review of these liabilities. The Company stated that the principal effects of the restatement would be a reduction in previously reported net losses for 2000, 2001, and 2002 and an increase in shareholders’ equity and net assets previously reported on its balance sheet. A dozen of the company's most senior executives returned $8.6 million dollars of bonuses they were paid based on the erroneous accounting. Investigators ultimately found about $3 billion in revenue had been booked improperly in 1998, 1999, and 2000. More than $2 billion was moved into later years, about $750 million was pushed forward beyond 2003 and about $250 million was wiped away completely. The accounting scandal hurt both Nortel's reputation and finances.
To improve Nortel's liquidity in support of its operations, Nortel reached an agreement in 2003 with Export Development Canada for it to provide Nortel with a credit support facility of up to US$750 million.
After Dunn's firing, retired United States Admiral Bill Owens, at the time a member of the board of directors, was appointed interim CEO. Nortel Networks subsequently returned to using the Nortel name for branding purposes only (the official company name was not changed). Nortel acquired PEC Solutions, a provider of information technology and telecommunications services to various government agencies and departments, in June 2005, renaming it Nortel Government Solutions Incorporated (NGS). LG Electronics and Nortel formed a joint venture in August, with Nortel owning 50% plus one share, to offer telecom and networking solutions in the wireline, optical, wireless and enterprise areas for South Korean and global customers.
Peter W. Currie, previously the Chief Financial Officer (CFO) of the Royal Bank of Canada, was named CFO of Nortel in 2005, having previously served as Northern Telecom's CFO in the 1990s. Gary Daichendt, the former Chief Operating Officer of Cisco Systems, was hired as President and COO, and was expected to succeed Owens as CEO. Shortly afterward, Daichendt appointed ex-Cisco Chief Science Officer Gary Kunis as Chief Technology Officer (CTO). Both Garys were concerned about the overall direction of Nortel, especially when compared to Cisco, their previous employer. Just three months later, Daichendt resigned after both his restructuring plan and his suggestion that Owens and Currie leave the company immediately were rejected by the board of directors. Kunis quit shortly thereafter. At the end of the year, directors "Red" Wilson and John Cleghorn retired from the board.
Mike S. Zafirovski, who had served as President and CEO of GE Lighting and then as Motorola President and COO, succeeded Owens as president and CEO on November 15, 2005. Motorola filed a suit against Zafirovski's hiring, alleging that his new position would break the terms of the non-disclosure agreement he had signed. Nortel agreed to pay $11.5 million on his behalf to settle the lawsuit. Nortel also paid out US$575 million and 629 million common shares in 2006 to settle a class-action lawsuit that accused the company of misleading investors about the health of the company.
Peter W. Currie stepped down as Executive Vice President and CFO in early 2007. In February, 2007, Nortel announced its plans to reduce its workforce by 2,000 employees, and to transfer an additional 1,000 jobs to lower-cost job sites. The Securities and Exchange Commission filed civil fraud charges against Nortel for accounting fraud from 2000 to 2003 to close gaps between its true performance, its internal targets and Wall Street expectations. Nortel settled the case, paying $35 million, which the Commission distributed to affected shareholders, and reporting periodically to the Commission on remedial measures to improve its financial accounting. Dunn, Beatty, and Gollogly were charged in June 2008 by the RCMP for criminal fraud related to their activities in 2002–2003.
Nortel announced plans in February 2008 to eliminate 2,100 jobs, and to transfer another 1,000 jobs to lower-cost centres. As part of the reductions, Nortel shut down its Calgary campus in 2009.
During its reporting of third quarter 2008 results, Nortel announced it would restructure into three vertically-integrated business units: Enterprise, Carrier Networks, and Metro Ethernet Networks. As part of the decentralization of its organization, four executive positions were eliminated, effective January 1, 2009: Chief Marketing Officer Lauren Flaherty, Chief Technology Officer John Roese, Global Services President Dietmar Wendt, and Executive Vice President Global Sales Bill Nelson. A net reduction of 1,300 jobs was also announced. As its stock price dropped below $1, the New York Stock Exchange notified Nortel that it would be delisted if its common shares failed to rise above $1 per share within 6 months. Rumours continued to persist of Nortel's poor financial health, amid the late 2000s recession, and its bids for government funds were turned down.
On January 14, 2009, Nortel filed for protection from creditors, in the United States under Chapter 11 of the United States Bankruptcy Code, in Canada under the Companies' Creditors Arrangement Act, and in the United Kingdom under the Insolvency Act 1986. Nortel was the first major technology company to seek bankruptcy protection in this global downturn.  Nortel had an interest payment of $107 million due the next day, approximately 4.6% of its cash reserves of approximately $2.3 billion. After the announcement, the share price fell more than 79% on the Toronto Stock Exchange. EDC, a government agency, had agreed to provide up to C$30 million in short-term financing through an existing bonding facility, however the Canadian government resisted characterizing its position on Nortel as a bailout.
Nortel initially hoped to re-emerge from bankruptcy, so it paid out retention bonuses to almost 1,000 top executives, totalling up to US$45 million, drawing criticism as the company withheld severance payments to employees laid-off prior to the creditor protection filing.
At the end of January 2009, Nortel announced that it would be discontinuing its WiMAX business and its joint agreement with Alvarion. Nortel subsequently sold its Layer 4-7 application delivery business to Israeli technology firm Radware for $18 million dollars, after Radware had initially placed a stalking horse bid. Nortel had acquired the application switch product line in October 2000 when it purchased Alteon WebSystems.
With the worsening recession and drop in stock markets deterring potential companies from bidding for Nortel's assets, and many of Nortel's major customers reconsidering their relationships with the restructuring company, in June Nortel announced that it no longer planned to emerge from bankruptcy protection, and would seek buyers for all of its business units. After announcing it planned to sell off all of its assets, Nortel shares were delisted from the Toronto Stock Exchange on June 26, 2009 at a price of $0.185 per share, down from its high in 2000 when it comprised a third of the S&P/TSX composite index. Mike Zafirovski subsequently resigned in August, and Nortel's board of directors was reorganized with three members instead of nine.
Nokia Siemens Networks made a stalking horse bid to purchase Nortel's CDMA and LTE assets for $650 million. By the July 21 deadline for additional bids, MatlinPatterson and Ericsson had made offers, and Ericsson emerged as the victor in the following auction, with a purchase price of $1.13 billion. Avaya won an auction for Nortel's Enterprise Solutions business for $900 million, after having placed a stalking horse bid of $475 million. In November, Nortel sold its MEN (Metro Ethernet Networks) unit to Ciena Corporation for US$530 million in cash and US$239 million in convertible notes, and its GSM business at auction to Ericsson and Kapsch for US$103 million.
As insurance against judgments in class action lawsuits filed by former employees, John Roth filed in December 2009 for a US$1 billion indemnification from Nortel, joining the list of U.S. creditors.
On December 23, 2009, Genband placed a stalking horse bid of $282 million for the Carrier VoIP and Application Solutions (CVAS) unit, subject to adjustments that decrease the net sale price to about $100 million.  The sale to Genband was subsequently approved (subject to court approval in Canada, USA and Israel on March 3, 2010) without a formal bidding process on February 24, 2010. 
In a U.S. court filing on February 11, 2010, Nortel proposed to spend $92.3M on retention bonuses for 1,475 employees in its Nortel Business Services and Corporate groups. According to the plan, Christopher Ricaurte, president of Nortel Business Services, will receive $2.5 million in incentives. In all, Canadian employees are eligible for $27 million, U.S. employees $55 million, and about $10 million will go to others. This proposed plan came the same week Nortel negotiated a $57-million deal to wind up health care and other benefits for former Canadian employees. Claiming that the retention bonuses proposal is extraordinary, acting US trustee, Roberta DeAngelis, objected to the payment of $555.6 million to 866 employees. However, court appointed representatives for Nortel former employees, who are creditors in the Ontario bankruptcy court, have signed an agreement to not oppose any employee incentive program.
Nortel makes telecommunications and computer network equipment and software. They serve both general businesses and communications carriers (landline telephone, mobile phone, and cable TV carriers). Technologies include telephony (voice) equipment of all kinds, optical fiber, local wireless, and multimedia.
Past and present products include:
|Telephone Systems||Telephone sets and terminals||LAN and MAN equipment|
|Application Server 5200 and Application Server 5300 (AS5300)||Nortel business phones, digital sets for Meridian and Norstar||Baystack and ERS (Ethernet Routing Switch), managed network switches for Ethernet; ERS-8600, ERS-8300, ERS-5600, ERS-5500, ERS-4500, ERS-2500|
|Digital Multiplex System (DMS and SL-100 families) large-scale digital carrier phone switch||Northern Electric home phones||Multiservice Switch (MSS) (formerly Passport); MSS20000, MSS15000, MSS7400, MSS6400|
|Meridian 1 (SL-1) medium-to-large-scale PBX||Northern Telecom home phones||Metro Ethernet Routing Switch 8600|
|Meridian Norstar small-to-medium-scale digital key telephone system||Nortel payphones||Nortel Secure Network Access (switch and software)|
|Nortel Communication Servers, medium-to-large-scale VoIP PBX Systems; CS2100, CS2000, CS1500, CS1000||Nortel IP Phone 1120E|
|DV-1 minicomputer digital voice and data system||Nortel IP Phone 1140E|
|SG-1 analog stored program control PBX|
|SP-1 analog stored program control carrier switch|
|Routers||Software||Other WAN equipment|
|Secure Router 1000 Systems; SR1004, SR1002, SR1001S, SR1001||Visualization Performance & Fault Manager (VPFM)||1 Mbit/s modem|
|Secure Router 3120||Nortel Enterprise Switch Manager|
|Secure Router 4134||Nortel File and Inventory Manager|
|Secure Router 8000 Systems; SR8002, SR8004, SR8008, SR8012||Nortel Multi-link Trunking Manager|
|VPN Routers; 1750, 2700, 2750, 5000||Nortel Multicast Manager|
|Nortel Speech Server|
|Passport Carrier Release|
|Nortel Routing Manager|
|Nortel Security Manager|
|Nortel VLAN manager|
|Unified Communications Management|
|Agile Communication Environment|
Nortel's current headquarters is located at 5945 Airport Road in Mississauga, Ontario. Previous locations of its head offices include Brampton, Ontario, and at 195 The West Mall in the greater Toronto area. The company has other key locations across Canada including its R&D headquarters in Ottawa.
Nortel expanded into the U.S. in 1971. Today there are employees in over 100 locations in the U.S. with R&D, software engineering, and sales centers in many states including California, Florida, Georgia, Illinois, Maryland, Massachusetts, North Carolina, Texas, and Virginia. Nortel's full service R&D centres are located in Ottawa (its R&D headquarters), Beijing, and Guangzhou. In Canada, Nortel also has R&D sites in Montreal, Belleville, and Calgary. In the United States, Nortel's major R&D sites are in Research Triangle Park (North Carolina), Richardson (Texas), Boston, and Santa Clara.
Nortel has significant presence in Europe, Middle East, Africa, the Caribbean, and Latin America. Nortel delivers network infrastructure and communication services to customers across Asia in Mainland China, Hong Kong, Taiwan, South Korea, Japan, Singapore, Thailand, Malaysia, India, Pakistan, Australia, New Zealand, and Turkey (Nortel owns 53.17% of Nortel Netaş, originally established as a joint venture with Turkish PTT in 1967). In addition, the company has three joint ventures in the People's Republic of China, including Guangdong Nortel Telecommunications Equipment (GDNT), who operates Nortel's full service R&D centres in China.
At the start of 2010, based on membership in Nortel's benefit plan, there were 1,637 employees working for Nortel Networks and 982 working for Nortel Technology in Canada. In February 2008, Nortel employed approximately 32,550 people worldwide, including 6,800 employees in Canada and 11,900 in the United States. Nortel operations are divided into the following segments:
Among the theories for the origin of the term nerd having started in Detroit is that it derives from the abbreviation NERD on the pocket protectors of Northern Electric Reserch & Development engineers.
Nortel is one of the oldest technology companies. The company started making phones in 1895 and the company was called Northern Electric and Manufacturing Company.