Nortel has $11.6 bn assets and $11.8 bn liability. That would mean a overall liability of 200 million. They have a cash of $2.6 billion. I know what you are thinking but they really do have that cash. They are burning around $300 million per quarter of that cash. Which means they can actually survive through 2010. But it filed filed for bankruptcy protection in Canada, The US and Europe.
Nortel is a Canadian success story which manufactures telecom gear. Nortel has its share of worries like a accounting scandal, innovating the wrong thing, acquiring companies and exiting the wrong business. Bankruptcy is the last of them. During this bankruptcy protection Nortel will negotiate $4.5 billion of its debt, exit some of the businesses, sell stakes and emerge as a much smaller and stronger company.
What does it mean to India? Nothing much in the greater scheme of things but it just compounds existing worries.
Four Indian companies are likely to take a marginal hit by Nortel’s bankruptcy :
Infosys : Less than 0.5% of the total annual revenues. That is very minimal for a company of Infosys’s stature. It has a receivables of $2.9 million from Nortel.
TCS : 1% of the total TCS revenues come from Nortel. TCS and Nortel also run a Overseas Development center in Mumbai. It has a receivables of $2.9 million from Nortel. The exposure of 1% is not significant for a major company like TCS. It has already picked some new business from World Bank following Satyam’s fallout.
Wipro : Less than 1.5% of the total revenues are contributed by Nortel. It has a receivables of $3.1 million from Nortel. But as per Wipro major portion of the work will continue. This is a blow to Wipro as it is reeling under pressure from the World Bank ban and pressure from other clients.
Sasken : Nortel holds 9.51% stake in Sasken. Of the 4 companies listed, Sasken might be hit badly. The stake will be bought by some other group but business will be lost which is around 10%.
Nortel provides equipment to Reliance Communications, Bharti Airtel and BSNL. But these businesses are unlikely to be affected because they are profit making divisions and other companies will be ready to buy them. They can also source from the Nortel’s competition. Chinese maker ZTE which is Nortel’s competitor is riding high after Nortel’s bankruptcy.
Nortel’s bankruptcy has added itself to the series of unfortunate events happening in the Indian IT sector. The impact might be minimal in the long run but there will be immediate impact on the receivables. The companies listed above don’t see cash as a problem. At least on paper.
There are few things to be taken from this particular filing. Nortel has $2.6 billion in cash and could have survived till 2010, but it did not. This shows the foresight and emotional detachment of the leaders. The same kind of foresight is missing from Indian companies. It is fine to be emotionally attached to a company to some extent.
The leader has to take a call on when to shut the shop. This to me is the single most important factor in running a business in today’s environment. It should also be made a part of the management curriculum if it isn’t already.
Is it cultural that most of the north American companies come out in open and seek bankruptcy protection? Is it also cultural that Indian companies never seek bankruptcy protection and let the things boil?