Nortel Networks' bankruptcy filing is expected to weigh heavily on electronics manufacturers of all stripes, as the telecom giant's problems reflect an industry struggling to come to grips with a downturn in demand.
In seeking creditor protection sooner rather than later, the company that used to be Canada's foremost technology play said Wednesday that “the global financial crisis and recession have compounded Nortel's financial challenges.”
These same challenges exist right through the tech hardware industry. On Tuesday, before Nortel filed, RBC Dominion Securities tech analyst Amit Daryanani published a deeply bearish report on companies in what he called the "electronics supply chain.” That chain includes companies such as Flextronics, a major Nortel supplier.
“We expect the fourth quarter to highlight the strains of the economic meltdown as demand likely fell across a broad spectrum of end markets, with notable pain in consumer and automotive markets,” Mr. Daryanani said. “Aggressive cuts in fixed cost... have unfortunately been too late to cope with the speed of macro deterioration.”
In looking ahead at the sector, Mr. Daryanani predicted electronics manufacturers will miss analysts' earnings forecast in the first quarter of 2009. The RBC Dominion analyst noted that his profit estimates are 20 per cent below the consensus of his peers, and “may prove to be more realistic.”
