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Why was inventory written down for Nortel Networks?

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Many high-technology companies, like Nortel Networks, Micron Technology and JDS Uniphase, have written down massive amounts of their inventory. For example, Nortel Networks revalued some of its inventory parts at $0, though the inventory initially cost Nortel $650 million.

Companies are required to report whether they write off the cost value (or book value) or their inventory even if they do not dispose of the inventory. Later on, they may sell this inventory but are not required to report the sale for cash of previously "worthless" inventory. The effect may be that in future years, when the inventory is sold, profits are overstated.
Also in the article, JDS Uniphase said it will write off $250 million of its inventory but promised to disclose any future sale. On the other hand, Micron Technology, which wrote down $260 million, won't disclose any future sale.

Explain whether or not the Securities and Exchange Commission should do anything and why or why not?

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Solution Summary

This solution is comprised of a detailed explanation of whether or not the Securities and Exchange Commission should do anything about the written off of the inventory for Nortel Networks in 2 paragraphs of more than 100 words of text.

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Please find my response below. Hope this helps, and good luck with your study.

The Securities and Exchange Commission or SEC should request Nortel Networks, Micron Technology, and JDS Uniphase to include the write-offs ...

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