Nortel Networks, North America's biggest telephone equipment maker, filed for bankruptcy today, hoping to save a once high-flying business. The move will impact Indian information technology companies as Nortel was one of their key clients.
Some of the firms which may feel the heat are Tata Consultancy Services, Infosys, Wipro and Sasken Communication.
Nortel is among the top 15 clients of Infosys, Wipro and Sasken, which make software for the firm. Nortel also holds a 9.51 per cent stake in Sasken. Wipro has been working with Nortel for over 15 years as a product engineering vendor.
When contacted, Infosys denied to comment on the issue. Girish Paranjape, CEO, Wipro, said, "We cannot comment immediately on clients due to confidentiality agreements."
One per cent of TCS' total revenues comes from the Canadian major. Also, TCS and Nortel are operating an Overseas Development Centre in Mumbai. When contacted, a TCS spokesperson said: "Since the exposure is around 1 per cent, we don't think there would be any major impact on our company."
Nortel said it is still too early to comment on such issues. "We have a long and mutually rewarding experience working extensively with these and other organisations in India. Our affiliates across Asia, including India, are not included in these proceedings and are expected to continue to operate as normal. No announcements were made today regarding strategy and we are unable to expand further at this time," said Matthew Wray, Spokesperson, Nortel Asia.
"We remain fully committed to supporting all our customers, external stakeholders and our R&D investments in India and around the world during this process," he said.
However, analysts believe that Nortel's filing of Chapter 11 will immediately impact receivables of Indian IT firms. "Under such circumstances, the receivable cycle gets extended as the company has to chart a restructuring plan, but in the long run, there are chances of increased offshoring," said an analyst on condition of anonymity.
Nortel's filing, however, might not impact Indian telecom firms, as Nortel is more of a vendor than a partner.
Reuters adds: Nortel's filing marks a crucial stage in the slow deterioration of one of Canada's most prominent companies. Nortel, a stock market darling before the tech bubble burst at the start of the decade and still one of the country's largest employers, has struggled for years in an industry that has changed radically since its heyday in the late 1990s.
Despite its woes, Nortel is still a big part of Corporate Canada, with 32,000 employees and major operations in Ottawa, considered the country's high-tech hub. Its payroll has also reflected its fortunes, shrinking from 90,000 in 2000.
A sharp slowdown in many of Nortel's major markets, especially the US, has exacerbated its problems, leading the company to warn last month that its business was under increased pressure and its cash position and liquidity were deteriorating.
"It's obviously a remarkable transformation from where it was as the largest company in Canada worth about 35 per cent of the (Toronto Stock Exchange) in 2000," said Gavin Graham, director of investments at BMO Asset Management in Toronto.
"But this is a reflection of the way that the telecommunications industry has changed."
Telecom companies have scaled back spending on the equipment that Nortel makes in a bid to clamp down on costs amid the global downturn. At the same time, the company has faced intense competition from North American and European rivals such as Alcatel-Lucent and Ericsson, as well as low-cost Asian vendors such as Huawei Technologies.
Shares of Nortel plunged more than 76 per cent to 7.5 cents in electronic pre-market trading on Wednesday. The TSX said it was reviewing the stock for possible delisting.