Nortel eyes possible bankruptcy protection: report

Nortel Networks Corp. has sought advice regarding possible bankruptcy protection at the same time as the besieged technology company is asking Ottawa for financial help, the Wall Street Journal reported Wednesday.

The U.S. paper said Nortel is not planning any imminent financial filing but has engaged different professionals to make various plans for the upcoming quarters. The Journal cited unnamed people familiar with Nortel's situation as the sources for its story.

Nortel, which makes technological devices such as optical communication switches, has been losing money for years and is facing decreased sales as the global economy slows.

The company, however, denied that it is in as bad financial shape as the Journal story indicated.

"There are those who fuel negative speculation, but there are many more who believe that Nortel has put in place the necessary plans to strengthen our financial footing and reset our cost base ... Nortel is a viable partner for the long term," the company said in response to the Journal story.

Still, there is no denying that Nortel, like many technology firms, is facing an uphill climb to profitability.

In the fiscal quarter ended Sept. 30, Nortel posted revenue of $2.32 billion US, down 14 per cent compared to the same period one year earlier. Because technology companies often have large non-cash charges applied to their profit statements, analysts watch their sales figures as a proxy for company health.

In the same quarter in 2008, Nortel noted that it had $2.3 billion in cash, down approximately $900 million compared to the third quarter of 2007.

The company used up $144 million of its financial reserves in the July-to-September period for a total "cash burn rate" of $478 million in the first nine months of the year. That figure was a substantial slowing of the pace at which Nortel chewed up its cash reserves during the first three quarters of 2007, when the company used up $820 million in available monies.

Nortel's burn rate is particularly important because the company cited cost savings, not available lines of credit, as the future source of additional cash flow.

"In order to bolster liquidity and competitiveness, comprehensive cost reduction and cash preservation actions are underway, including those highlighted in this press release. Nortel's ability to reduce cash outflow from operations will depend on its ability to drive profitable revenue streams, and successfully implement the cost reduction initiatives and new operating model and is subject to the continuing impact of the economic and financial market conditions on customers and in particular, their purchasing decisions," Nortel said in its most recent earnings release.

Three month stock chart for Nortel Networks Corp.

That could be an indication that lenders are less enthralled with Nortel's business prospects and a further reason why the Canadian technology company might seek financial help from Ottawa.

Nortel has approximately 30,000 employees.

The company is currently going through a reorganization process in which 2,500 workers will be let go in the coming months.