Shares in Nortel plunged on Wednesday after the Canadian telecommunications equipment manufacturer issued a sales and profit warning and put one of its fastest growing businesses up for sale.

Once a darling of the technology sector, Nortel's stock plummeted more than 50 per cent to close at $2.76, down $2.96, on the Toronto Stock Exchange - its lowest point in more than 25 years. That gave Nortel a market capitalization of about $1.4 billion, a far cry from the nearly $375 billion it enjoyed during the lofty heights of the tech bubble.

Nortel, which has spent the past three years recovering from an accounting scandal, is considering new cost cutting ideas after warning that its profit margin improvement in 2008 would be less than previously forecast. It is also considering selling its Metro Ethernet Networks business, which makes fixed-line equipment capable of carrying bandwidth-hungry applications such as high-definition television.

''Given our predicted financial results and our current balance sheet in a tough economic environment, we clearly understand the status quo is not an option for Nortel,'' CEO Mike Zafirovski said in a conference call with analysts.

Nortel is the latest equipment maker to be hit by the global economic downturn because fixed-line and mobile phone companies are cutting their spending. Nokia, the world's largest mobile phone maker, this month said its market share of handset shipments would decline in the third quarter, adding that its profitability could also be hurt.

Nortel yesterday said its 2008 operating margin would improve by 1.25-1.75 percentage points compared with 2007. The company's previous guidance was for a 3 percentage point improvement. It also said 2008 revenue would decline by 2-4 per cent compared with 2007. Previous guidance was for low single digit growth.

Zafirovski highlighted how the company had warned last month of difficult operating circumstances because of the economic slowdown, strong competition and reduced spending by customers. He said those factors, outlined at the second-quarter results, had led to the revised outlook for 2008.

Zafirovski said the possible sale of Nortel's Metro Ethernet business, which recorded revenue growth of 4 per cent in the second quarter, would strengthen its balance sheet. Nortel reported a cash outflow from operating activities of $74 million in the second quarter.

Just two weeks ago, Nortel trumpeted a deal with phone giant Bell Canada Inc. in which Metro Ethernet Networks' optical technology would be used to dramatically increase the capacity of Bell's broadband Internet network. Although analysts questioned the intelligence of selling what the company itself considered a ''growth engine'' till recently, Nortel's board appeared to be left with little choice.

"We're being realistic," said Zafirovski, "In today's environment with our balance sheet ... the view is that it would be very advantageous to make some decisions to remain relevant in areas where we can focus."

If the Metro Ethernet business were sold, Nortel's operations would be led by Carrier, which supplies infrastructure to fixed-line and mobile operators, and Enterprise, which provides telecoms equipment to companies.

Some analysts question whether Nortel has the scale to survive following industry consolidation over the past two years, but Zafirovski said, ''I am very confident that we are on the right path for our enterprise and carrier businesses, including all the related services and applications that represent long-term growth opportunities for the company.''

Nortel is a company that has seen a lot of ups and downs in its century-long existence. Created in 1895 by spinning off the manufacturing arm of Bell Telephone Company of Canada, it reached a prominent position in the world of electronics by end of World War I.

In the late 1990s, stock market speculators, hoping that Nortel would reap increasingly lucrative profits from the sale of fiber 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, 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. Nortel's market capitalization fell from C$398 billion in September 2000 to less than $5 billion in August 2002. Nortel's stock price plunged from C$124 to $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.

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 (''First Restatement''). 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.

Nortel unveiled details of additional accounting errors involving billions of dollars and said that a dozen of the company's most senior executives would take the unusual step of returning $8.6 million, millions of dollars of bonuses they were paid based on the erroneous accounting.

At Nortel, 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.

Five directors stepped down. Nortel's board has faced criticism for allowing the company's accounting fiasco to go on and approving the bonus plans, but none of the five directors were accused of wrongdoing in a company investigation. This accounting controversy eventually led to the departure of ten Nortel executives in 2004. CEO Frank Dunn, CFO Douglas Beatty, and controller Michael Gollogly were fired.

Now, this current move seems like the latest attempt by Nortel to rebound from the massive accounting scandal that cost it billions and remake itself as a 21st Century telecommunications provider at a time when the industry is tightening its spending. The restructuring has so far included more than 4,000 job cuts in the past two years and the relocation of thousands of other employees to countries where costs are cheaper.

While Nortel had previously appeared reluctant to part with any of its business units, analysts said a successful sale would leave the company to focus more heavily on sales of networking equipment that large companies use in their offices, an area dominated by heavyweights such as Cisco Systems.