TORONTO (CP) -- Nortel Networks Corp. will probably survive its time under bankruptcy protection, but it faces several huge hurdles on the way to becoming a viable company again, and whatever emerges from the wreckage will be a shadow of its former self, analysts say.
A day after the telecommunications equipment manufacturer filed for bankruptcy protection in both Canada and the United States, Canadians are pondering the future of the company that was once the country's most famous stock.
Whatever happens to Nortel in the long run, the process of getting there isn't going to be pretty, said Andy Woyzbun, lead analyst at Info-Tech Research Group.
Woyzbun, who advises customers of information technology companies such as Nortel, said one of the biggest challenges the company faces now is attracting new clients.
"I think that it would have been a challenge in a normal economy. It becomes extremely difficult in this economy," Woyzbun said in an interview Thursday.
He said existing Nortel clients -- primarily phone companies and businesses or public-sector organizations with their own phone systems -- will probably continue to buy from the company, but even purchases from old clients will shrink due to the recession.
"What I would be concerned about is if you're starting from scratch, buying new, and Nortel is on your potential vendor list, you'd better have a pretty good reason why the Nortel product is superior than anything else before I would buy it," Woyzbun added.
Duncan Stewart of DSAM Consulting said he doesn't believe customers should worry too much, because even if Nortel goes out of business entirely, someone will buy up its divisions and continue to support the products.
He said what Nortel does is "interesting enough and profitable enough" that it's "not going to go away."
But it's not nearly as certain whether Nortel itself will continue to exist, at least not in its current form.
The company has been struggling with its balance sheet for years, and these issues have only been exacerbated by the current economic climate, Stewart said.
Nortel currently has approximately $4.5 billion in debt, $2 billion in pension obligations, and $2.3 billion in cash and restricted cash.
However, approximately $400,000 of that cash is tied up in a troubled U.S. money-market fund and as much as $1 billion could be tied up in a joint venture with LG, Stewart said.
"They're not going bankrupt because of their products or their industry or management decisions, although all of those contributed," Stewart said. "Nortel was a leaky boat that got hit by a hurricane."
Stewart predicted the company will sell itself off piece by piece until what's left it a small but streamlined version of the once-colossal tech company, which has already trimmed itself down to less than one-third the workforce it had at its peak in 2000.
"What happens is, Nortel sells one division, sells another division, renegotiates its debt, renegotiates its pension obligations, restructures itself and is a $1 billion to $2 billion enterprise data company -- a phoenix rising from the ashes," Stewart said.
Woyzbun said the real danger is the company will stop spending on research and development in the meantime, making it an irrelevant player in an industry that must constantly innovate.
"Nortel works in an industry that survives through technical innovation," Woyzbun said.
"My suspicion is that they've taken and will continue to take big bleeding chunks out of their R&D capacity. ... They're not going to eliminate their sales organization, they're not going to eliminate all of their manufacturing capabilities, so what's discretionary? R&D."
Shares in Nortel regained a little ground in Thursday trading after tanking Wednesday, adding one cent or 8.3 per cent to 13 cents with more than 44 million changing hands. This is still close to a historic bottom for the shares that once traded for as much as $124.50.
Long-suffering Nortel has been trying to restructure for more than three years and becomes the first major North American technology company to be forced into bankruptcy protection by the global downturn and credit market crunch.
North America's biggest maker of telecom gear has faced a variety of troubles since the telecom bubble burst eight years ago -- including accounting problems that devastated its stock and led to criminal charges against former executives.
Most recently, the slumping economy squeezed orders from its phone company customers and ate into its revenues, helping to produce mounting losses.
The company directly and through joint ventures employs about 30,000 people around the world, including 5,800 at Canadian operations in Ottawa and Toronto.
Nortel once had more 95,000 employees and a stock market value of C$366 billion on the Toronto Stock Exchange, making it Canada's most valuable company. On Wednesday, the company was worth just over $64 million.