Nortel Bankruptcy Filing Casts Doubt on Future Path –
The Carrier and Enterprise Network Perspectives
| Jan 15, 2009 | Telecom Infrastructure, Enterprise Technology and Software | Competitive Intelligence Report
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Analysts: Peter Jarich, Brian Riggs
Current Perspective: Negative
Vendor Importance: Very High
Market Impact: Moderate
Event Summary
January 14, 2009 – Nortel Networks announced that it would seek creditor protection under Canada’s Companies’ Creditors Arrangement Act and the Chapter 11 of the U.S. Bankruptcy Code, with EMEA subsidiaries expected to follow suit. With a $2.4 billion cash position (unaudited balance at the end of 2008), day-to-day operations will continue uninterrupted and affiliates in Asia (LG Nortel) and CALA, as well as the Nortel Government Solutions business are not included in the proceedings.
Analytical Summary
• Current Perspective: Negative on Nortel’s bankruptcy filing in the U.S., Canada and Europe. To be sure, the move makes sound financial sense, allowing a deeper restructuring (potential split up and sale) while the company still has enough cash to continue day-to-day operations. In the longer-term, however, it calls into question what Nortel will look like as a competitor in the wireless, fixed-line and enterprise markets, as well as which products it will support going forward. These are, of course, questions no would-be customer wants to be asking.
• Vendor Importance: Very high to Nortel, because bankruptcy protection is something no company takes lightly. While cash on hand would have allowed Nortel to continue operations as normal, substantial debt service burdens and an inability to execute on planned divestitures (i.e., selling off its Metro Ethernet Networks division) meant that something proactive and drastic was necessary in order to move restructuring forward.
• Market Impact - Carrier Infrastructure: Moderate on the carrier infrastructure market because most competitors have already begun treating Nortel as a company that had become less than threatening. With a recent history of weak financials, restructuring and layoffs, an official declaration of bankruptcy merely affirms what Nortel’s rivals have largely been predicting, and the way they’ve been positioning it to would-be customers. Of course, now that bankruptcy proceedings have begun and the company’s long-term future remains a major question mark, these competitors are in a much better position to stir up additional concern and jump on potential deal opportunities that might otherwise have gone Nortel’s way.
• Market Impact - Enterprise Infrastructure: Moderate on the enterprise market, because most competitors have already begun treating Nortel as a company that had become less than threatening. With a recent history of weak financials, restructuring and layoffs, an official declaration of bankruptcy merely affirms what Nortel’s rivals have largely been predicting, and the way they’ve been positioning it to would-be customers. Of course, now that bankruptcy proceedings have begun and the company’s long-term future remains a major question mark, these competitors are in a much better position to stir up additional concern and jump on potential deal opportunities that might otherwise have gone Nortel’s way.
CLIENTS ONLY
Current Perspective
Competitive Positives and Concerns
Recommended Vendor Actions
Recommended Competitor Actions
| Client access - Full report Telecom Infrastructure | More information
| Client access - Full report Enteprise Technology and Software | More information
Recommended Carrier End User/Customer Actions
• Nortel’s current and would-be customers should not overreact to its Chapter 11 bankruptcy filing. It is clearly not a good sign for the company. However, it does not mean that Nortel is going out of business in the near-term. Instead, with cash on hand, the company will be able to support customer demands and (hopefully) come out of its restructuring as a stronger partner. If nothing else, the vendor will be unable to shed much light on its future plans until they unfold, making worried engagements a potential waste of time.
• While not obsessing over Nortel’s current restructuring, all of its customers need to closely follow the restructuring proceedings. In the near-term, this means putting on hold any major purchase decisions requiring on-going support from the vendor. Going forward, then, this means tracking the company’s structure in order to determine which markets the company will remain in, which businesses will be sold and how these decisions impact the attractiveness of its solutions.
• Where not already in place, Nortel customers need to establish secondary supplier relationships in their network or enterprise deployments. To be sure, this is a standard business practice. Now more than ever – with Nortel potentially pulling back from or exiting markets – operators need to take the practice seriously so that they can maintain service quality or operations should Nortel’s support disappear.
• Operators engaging vendors for product-independent services delivered over an extended contract period—such as network managed services—should question whether to use Nortel, all else being equal. In addition to potentially exposing subscribers to increased risk due to Nortel’s precarious financial position after filing for bankruptcy protection, recent corporate reorganization plans will eliminate the standalone Global Services division. With the latter development and Nortel’s continued effort to sell off product divisions, its services infrastructure is newly fragmented, with no clues apparent as to where the parts may end up.
Recommended Enterprise End User/Customer Actions
• Nortel’s current and would-be customers should not overreact to its Chapter 11 bankruptcy filing. It is clearly not a good sign for the company. However, it does not mean that Nortel is going out of business in the near-term. Instead, with cash on hand, the company will be able to support customer demands and (hopefully) come out of its restructuring as a stronger partner. If nothing else, the vendor will be unable to shed much light on its future plans until they unfold, making worried engagements a potential waste of time.
• While not obsessing over Nortel’s current restructuring, all of its customers need to closely follow the restructuring proceedings. In the near-term, this means putting on hold any major purchase decisions requiring on-going support from the vendor. Going forward, then, this means tracking the company’s structure in order to determine which markets the company will remain in, which businesses will be sold and how these decisions impact the attractiveness of its solutions.
• Where not already in place, Nortel customers need to establish secondary supplier relationships in their network or enterprise deployments. To be sure, this is a standard business practice. Now more than ever – with Nortel potentially pulling back from or exiting markets – operators need to take the practice seriously so that they can maintain service quality or operations should Nortel’s support disappear.
• Nortel's existing enterprise customers can be confident in knowing that they are a valuable asset. As a sought after commodity Nortel's enterprise customers will have multiple options available to them regardless of Nortel's long term direction. Customers should leverage this power to gain substantial incentives, incentives to either remain loyal to Nortel, or incentives from alternative vendors looking to displace existing Nortel gear.
• Enterprises considering new investments in communications, networking, and security solutions should continue to evaluate Nortel equipment. Any actual purchase during the bankruptcy period, however, must be done with eyes wide open and with an understanding of how the technology will be supported with or, perhaps, without Nortel’s direct involvement going forward. There are plenty of alternatives for enterprise systems and software for businesses willing to take on any additional risk, however small, posed by Nortel’s financial woes.
• Enterprises that are currently using Nortel as its secondary supplier should investigate other companies to put into the backup vendor position. Nortel's current difficulties make it difficult to rely on the company and a poor choice for a second-source vendor.
CLIENTS ONLY
Current Perspective
Competitive Positives and Concerns
Recommended Vendor Actions
Recommended Competitor Actions
| Client access - Full report Telecom Infrastructure | More information
| Client access - Full report Enteprise Technology and Software | More information
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