Canadian Telecom Colossus Nortel Files for Bankruptcy

Posted on January 19, 2009 by Sam Conforti

 

Canadian Telecom Colossus Nortel Files for Bankruptcy

Sean Michael Kerner, a senior editor for InternetNews.com and a proud Canadian (so says his Bio), has written a commentary on the financial woes and bankruptcy protection filing of the giant telecom equipment maker.  On January 14th Nortel filed for protection and reorganization in the US under Chapter 11.  As Kerner points out, the $2.4 billion Nortel has for continuing operations is a mere shadow of the $366 billion value it once held on the Toronto Stock Exchange.

From Kerner’s article it seems that the anticipated demise of Nortel is a convergence of two distinct events.  One of the culprits was the bursting of the telecom bubble as a consequence of the larger dot.com bubble bursting in the later part of the 20th Century and into 2001. The second reason was a huge accounting irregularity that forced Nortel to restate its financial statements for 2000, 2001, 2002 and the first and second quarters of 2003; for more on this see Kerner’s 2004 article Nortel Fires CEO Over Accounting.  The lack of a quick response only compounded matters.  I might add a third reason; the current global recession did not help the situation at all.

Kerner does not believe that Nortel can emerge from a reorganization and sees a break-up and a selloff of its most attractive business units to either Cisco, Juniper, Avaya, HP, or perhaps Nortel’s partner Microsoft.  The New York Times reports that this opinion is back-up by Mark Sue, an analyst with a unit of the Royal Bank of Canada, who stated “I don’t think it’s going to exist”.

The New York Times gave a brief synopsis of Nortel’s accomplishments:

“During the 1990s, Nortel designed and built much of the fiber optic equipment that now carries most of the Internet’s data.  Along with the company now known as Alcatel Lucent, it computerized the operation of telephone networks during the 1980s.  Nortel pioneered the development of equipment and software that brought the world wireless phone networks.”

Kerner concludes his commentary on a somber and poignant note:

“The true lesson in all of this though is simple. It is execution as well as prudent financial management that is the key to the success of a technology business. It's a lesson that Nortel is learning the hard way.”

For more on this story see also CNET News, Nortel Files for Bankruptcy.

 

 

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More Growth in Outsourcing in 2008

Posted on January 9, 2008 by Sam Conforti

InternetNews reports that Gartner predicts outsourcing will grow by more than 8% this year to approximately $441 billion. The trend in this continued use of outsourcing seems to be moving away from large vendors to more of the smaller vendors with specialized products or services that can meet a company’s particular needs. Gartner’s survey results indicate a recent change in company’s strategies and priorities vis-à-vis outsourcing. There has been a decidedly huge increase in the percentage of companies from 2005 to today that have established a disciplined process in their approach to determine if they will outsource.

"[We're] seeing our clients set up internal processes and applications to create a service model for other internal organizations to leverage," Hemant Ramachandra, managing director of BearingPoint's Technology Solutions unit, wrote in an e-mail to InternetNews.com. "This can be software-as-a-service or even application as a service. Setting up the right governance structure is critical to ensure that outsourcing is leveraged appropriately."

In 2007 IBM increased its market share for IT outsourcing to 8.1%. EDS was second with a 5.3% increase followed by a 3.3% increase for ADP.

In know what you’re thinking. Woe is me. All of our jobs are going overseas. This is the initial knee-jerk reaction when one hears about outsourcing and its inevitable increased use. But this does not have to be the only truth. As our economy evolves and adapts to the changes in our society and new needs arise, the way we work and the makeup of our workforce will necessarily evolve as well. The largest increases in new businesses in the US are in small business and a large percentage of those new small businesses are home based. New companies will also need to be created to meet the changing model from ASP to the new approach of Web-based Software as a Service (“SaaS”), which allows businesses access to software functionality for a more cost effective monthly fee instead of the cost of the application’s license fee and the upfront cost of more hardware. Who these new companies will employ is yet to be determined.
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