Where does Nortel go from here?

Nortel this week revealed just how precarious a position it is in, announcing layoffs and restructuring in the wake of a staggering $3.4 billion loss in the most recent quarter.

CEO Mike Zafirovski said in a statement that the 1,300 layoffs (four top executives among them) and reorganization will transform Nortel into a "simpler and leaner company."

Another result of the reorganization is the decentralization of several corporate functions, handing those functions back to individual business units. There will be an enterprise business unit, a Carrier Networks business unit that includes wireless, and a Metro Ethernet Networks business unit. The company says the move will give the business units more financial and operational control and make them more accountable for their overall performance.

But observers said there is something else at work here: Nortel is positioning itself for possibly breaking apart.

Nortel has been very public about trying to shed its Metro Ethernet Networks business unit. You may remember that Nortel had put the sale of the unit on the "fast track" in late September, which was right before the economy really went into the crapper. Needless to say, this is an extremely difficult climate to try to sell anything, particularly something that might require a bit of credit. So, Nortel finds itself in a bit of a bind.

Other observers have been questioning Zafirovski's future with Nortel. After all, since he joined the company in 2005, shareholders have seen losses skyrocket and the share price plummet from the mid-20s to under a buck. Maybe that's too much to lay at his feet, but he is CEO.

I will give him this - in the midst of Nortel's crisis, Zafirovski was able to find a silver lining, issuing this statement: "It is important to note, that despite the business environment, we continued to see important, multi-year customer wins in key areas of our business, validating the value and innovation that Nortel delivers to customers."

Jeff Caruso is site editor at Network World.