Update: Bankruptcy filing was in part to preserve $2.4B, Nortel exec says

Hackney says cash to be used to deliver products, support to customers

One major reason why Nortel Networks Corp. filed for protection from its creditors in the U.S. and other countries today was to preserve $2.4 billion in cash, which the company plans to use to provide support and service its customers, Nortel's head of enterprise sales said today.

"The $2.4 billion in cash we have is an important number to understand," said Joel Hackney, president of enterprise solutions at Nortel, in a telephone interview. "That money allows us to deliver products we have committed to customers and allows product support for customers."

Hackney said he was referring to switches and other networking gear that customer have agreed to purchase but that Nortel has not yet delivered. Some of the equipment might not be completely built or provisioned, and some might be waiting to be delivered at some cost.

Product support is an enormous ongoing cost for equipment suppliers and usually involves phone and e-mail contact with Nortel's support staff or its contractors in the event of problems.

Hackney said that as soon as the news was announced today, he began calling the CIOs at Nortel's five largest customers. "They had known about the $4 billion in Nortel debts for a while," he said. "They are savvy, and they get it and said they understand that Nortel is taking decisive actions to ensure it has support and R&D."

Hackney said that some Nortel employees and others might have been shocked by today's news.

"We regret the impact this could have for some of our stakeholders, and we know this is disturbing for employees to go through an unknown process, that's clear enough," he said. "Once we work through the emotion, though, we know this is the right decision ... for long-term success."

Hackney said that while some analysts might suggest that Nortel customers in line for an equipment refresh consider alternative providers, he said those customers need to look at why they have always chosen Nortel.

"I'd tell a customer considering a refresh to assess whether Nortel gives you the best value for the progress of your business, does it interoperate with other equipment and give the return on investment," Hackney said. "Those are the same questions as always. I'm absolutely convinced that our value proposition is there as before and only gets stronger with financial protections."

User group shows support

Meanwhile, the International Nortel Networks Users Association pledged its support to Nortel, saying the Chapter 11 filing means the company will have the "opportunity to truly focus on strengthening the business."

The INNUA is composed of about 4,000 Nortel customers, about 75% of whom are based in North America. Victor Bohnert, executive director of the Chicago-based INNUA, said that protecting the $2.4 billion in cash is "critical to Nortel customers." If a product was bought, it means it will still get shipped, he said.

"Chapter 11 is simply a restructuring tool, and Nortel is not going away," Bohnert said. He said he disagreed that now is the time to consider other vendors as some analysts have suggested. "Looking for another vendor may be reacting too quickly," he said.

Bohnert also said that Nortel has innovated in many areas, including its involvement in convergence technologies that bring together communications and computer technologies. He said Nortel's investment in R&D has outpaced that of competitors as well.

In a statement, Steve Ford, the INNUA president, called Nortel's decision to file for Chapter 11 "proactive." Ford is telecommunications manager at Northeastern State University in Tahlequah, Okla.

The creditor-protection moves that Nortel made "give me no pause at all," said Pierre-Eric Belzile, executive director of information and communication technology at the Montreal Canadiens. The hockey organization recently underwent a network refresh to Nortel IP phones that are used by more than 35 people. It also includes a network upgrade between a practice center and the Bell Center where games are played.

"I am more an engineer than a financial guy, but I simply can't believe a huge company like Nortel would go away," Belzile said. "I am a big user and a big supporter."

The Bell Center also uses Wi-Fi from Nortel to support its ticketing system, which includes ticket scanning. A new ticket-selling call center relies on Nortel gear as well, he said. In all, the team's investment with Nortel in the last year has totaled less than $500,000 and the systems can be maintained by two workers, he said.

"Their slogan of "business made simple" is for me," he said, "It's real. In our business, the show must go on, and you have to have the flexbility and ease to do things and we do."

Copyright © 2009 IDG Communications, Inc.

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