Nortel is still using the model
Nortel, rivals resuming vendor funding
globeandmail.com
By SIMON TUCK TECHNOLOGY REPORTER
Friday, January 11, 2002 – Print Edition, Page B1
OTTAWA -- Nortel Networks Corp. and two rivals have agreed to lend $298-million (U.S.) to a South American telephone company for equipment purchases, evidence the struggling telecommunications equipment giants have not abandoned using "vendor financing" as a competitive weapon.
AT&T Latin America Corp. said yesterday it has landed the deal with Brampton, Ont.-based Nortel, Lucent Technologies Inc. of Murray Hill, N.J., and Cisco Systems Inc. of San Jose, Calif.
AT&T Latin America didn't provide a financial breakdown of the loans, but said the money will be used to expand the telephone company's networks.
"This vendor financing represents a key element of ATTL's capital plan," Patricio Northland, the company's chief executive officer, said in a statement.
AT&T Latin America, controlled by AT&T Corp. of San Francisco, also said $70-million in earlier bridge loans from the equipment makers will be rolled into this latest deal. AT&T Latin America is based in Coral Gables, Fla., and operates in Argentina, Brazil, Chile, Colombia and Peru.
AT&T Latin America Corp. did not say whether the latest financing was a joint venture between the three companies, or several separate deals. Nortel spokeswoman Tina Warren wouldn't comment on the matter.
Vendor financing is the practice of a seller lending money to a buyer for the purchase of the lender's products. The practice became part of the bursting of the high-tech bubble when loans to some telecommunications services upstarts and other struggling customers helped send the equipment industry into a wicked tailspin about a year ago. When the slump hit, equipment providers approved loans as a partial remedy to slowing sales at a time when their customers' ability to repay them had waned.
Michael Urlocker, a technology analyst at UBS Warburg Inc. in Vancouver, said equipment makers such as Nortel are using vendor financing because it represents one of their few remaining competitive weapons.
"It shows you how there isn't a lot of product differentiation or technological innovation right now," he said. "There's no major wave of new technology sweeping the industry right now -- that's where companies like Nortel shine."
At the end of 2000, Nortel had $1.6-billion in "vendor financing" on its books, up from $1.1-billion in 1999. As of September, 2001, that figure had dropped to $549-million, although another $1.9-billion had been promised to customers in future loans. In a filing to U.S. regulators at that time, Nortel admitted that it didn't expect to collect all of that money. |
