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New Kerala 15th Jan 2009 Nortel Bankruptcy Jolts Indian IT Outsourcing Firms
1. Nortelbankruptcy jolts Indian IT outsourcing firms
Mumbai, Jan 15: India's outsourcing firms were jolted Thursday after Canada-
based Nortel Networks, one of North America's largest telecom equipment firms
and a key client for many IT firms in this country, filed for bankruptcy.
Among the biggies of Indian outsourcing firms that are expected to bear the heat of
the development are Tata Consultancy Services (TCS), Wipro, Infosys and Sasken
Communication Technologies, industry sources said.
These companies, however, declined comment on the Chapter 11 bankruptcy filing by
Nortel, citing client confidentiality agreements.
Sasken is expected to be the worst hit as Nortel holds a 9.33 percent stake in the
company, apart from being a top client. The filing led to the Sasken scrip losing over
16 percent at the Bombay Stock Exchange within hours of trading Thursday.
"India will have to face adverse effects of globalisation now that we have enjoyed the
fruits," said Jagannadham Thunuguntla, head of the capital markets arm and
director of a major share brokerage firm, the New Delhi-based SMC Group.
The losses of other companies that count Nortel as a client were not as much,
signifying that the revenue stream may not be hugely affected, analysts said.
But according to chief editor for technology, Cybermedia publications, Prasanto K.
Roy, Indian IT vendors will not be impacted to a great extent and will be able to
absorb the hit on revenues.
“The Indian suppliers will take a hit in cash flow and perhaps write-offs, but a small
one which the big three can absorb,” Roy told IANS Thursday.
“Some of the smaller ones, such as Sasken, with lower reserves, may feel more of a
hit, even though their exposure is far smaller in absolute terms,” he added.
“I don't expect major impact in the Indian landscape. First, the exposure is low for
most, as a percentage of revenue, especially the top three. Second, Nortel isn't
shutting down; it's seeking temporary protection against creditors.”
Nortel remains a big name in Corporate Canada, with 32,000 employees and major
operations in Ottawa, considered the country's high-tech hub. The employee
headcount fell from an high of 90,000 employees in 2000.
A Nortel India spokesperson declined comment on the issue.
Nortel's business has been experiencing a slowdown in many of its major markets,
2. especially in the US, resulting in the company sending out a warning that its revenues
were under pressure.
The company had recently acquired Tasman Networks in India to strengthen its
research and development efforts in the country. The laboratory was since renamed
Tasman Networks Nortel Technology Excellence Centre.
Some of Nortel's clients in the country include Reliance Infocomm, Bharat Sanchar
Nigam Ltd, Bharti Airtel and GAIL (India).