Nortel bankruptcy jolts Indian IT outsourcing firms (Lead)

January 15th, 2009 - 9:09 pm ICT by IANS  

Mumbai, Jan 15 (IANS) 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, 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).

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