Nortel Files for Bankruptcy

by Ashutosh Bhardwaj, UTVi    Jan 15, 2009

With Nortel, North America’s biggest telephone equipment maker, filing for Chapter 11 bankruptcy protection, some Indian companies, especially from the IT space, are likely to be hit. Concerns are also being raised over Nortel clients like Reliance Comm, BSNL, BPL Mobile Communications, Bharti Airtel, etc.

According to JP Morgan, Sasken Communications is likely to be affected the most. JP Morgan has also said that outstandings from Nortel will be difficult to recover.

The company commenced a process to turn around and transform Nortel in late 2005.  However, according to a press statement, the global financial crisis and recession compounded Nortel’s financial challenges and directly impacted its ability to complete this transformation.

Quicktakes

Nortel clients in India

Reliance Comm (Reliance Communications
Bharat Sanchar Nigam Limited
BPL Mobile Communications
Gas Authority of India
Bharti Airtel (BHARTIARTL
Impact on Indian IT Companies

* TCS, Infosys , Sasken and Wipro have exposure to Nortel
* Infosys CFO says Nortel contributes 0.5% of revenue
* Infosys has revenue run rate of $4-4.5 million per quarter
* Infosys have 300-400 staff engaged in Nortel projects
* Infosys says outstanding payment of $4 million from Nortel
* Nortel accounts for less than 1% of TCS revenues
* Wipro’s annual revenue from Nortel is around $25 million
* Wipro has been working with Nortel for over 15 years as a product engineering vendor
* Nortel among top five customers of Sasken
* Top five customers contribute 64.1% to Sasken revenue

Percentage of revenue from Nortel

* Infosys (INFOSYSTCH) — 0.5%   
* TCS — 1.0%
* Wipro (WIPRO) — 2.5%
* Sasken (SASKEN) — 10% 

Revenue from telecom vertical

Infosys — 16.7%
TCS — 16.4%
Wipro — 23%

Nortel has filed for bankruptcy under Chapter 11. The company said it has $2.4 billion in cash, while reporting $3.4 billion in Q3 loss. Nortel has also announced about 1300 layoffs - i.e. about 5% of its workforce. Following the disclosure, stocks of Nortel dropped more than 60%. Analysts say Nortel will have to shed assets at rock-bottom prices to fight for survival. The company is due to make an interest payment of $107 million.

However, the company’s affiliates in Asia, including LG Nortel and in the Caribbean and Latin America, as well as the Nortel Government Solutions business, are not included in these proceedings and are expected to continue to operate in the ordinary course.