Nortel's New Economics
Not to kick a dog when it's down but you have to love Nortel's ability to
turn a positive into a negatiive. Exhibit A is a US$500 million contract
Nortel announced earlier this week with an Indian wireless carrier. Turns
out - according to National Bank Financial analyst Tom Astle - Nortel could
lose as much as US$150 million on the deal. Apparently, that is the price of
admission to get a foothold in the Indian market these days. I guess the
idea is that you lose now but win later when customers come back for more
goodies - kind of like a retailer offering a loss-leader in the hope a
consumer buys some other premium price products. Nortel's willingness to
strike a money-losing deal shows the lengths that suppliers need to go these
days to win business in an industry with low single-digit growth. What you
may discover is while sales stay steady, profits will shrink unless you can
migrate your product mix to services and software. In many ways, Nortel is
looking much like Ericsson these days with its heavy reliance on wireless.
If that market starts to slow, watch out 'cause Nortel will have more to
worry about than cooked books.
————————–
Sent from my BlackBerry Wireless Handheld
