Nortel Networks

Nortel's 2009 bankruptcy ended a Canadian technology giant that had once been worth $398 billion—the most valuable company in Canadian history. The collapse demonstrated how companies can be destroyed by the interaction of market bubbles, accounting fraud, and competitive disruption, each amplifying the others. At its 2000 peak, Nortel represented one-third of the Toronto Stock Exchange's total value. Nortel's mechanism failure was bubble-era expansion that created obligations sustainable only through continued bubble growth. The company acquired 19 companies in 1999-2000 alone, paying inflated prices that required inflated revenues to justify. When the telecom bubble burst, Nortel was left with goodwill impairments exceeding its market value. The subsequent accounting fraud—management manipulated reserves to smooth earnings and trigger bonuses—added criminal liability to financial collapse. The company faced $400 million in SEC penalties and saw executives convicted. But the deeper failure was competitive. Nortel's core telecommunications equipment business faced Chinese competition from Huawei, which could underprice Nortel on everything. Legacy cost structures from Canadian manufacturing made competition impossible. Nortel tried to pivot to enterprise networking but lacked the agility to compete with Cisco. The company's patent portfolio, sold at bankruptcy for $4.5 billion to a consortium including Apple and Microsoft, proved more valuable than the operating business—a sign of how far Nortel had fallen from operational relevance.