Vendor Financing—Slippery Slope

A recent trend that we’ve been monitoring closely in the press is causing some pains of memories past. It seems that in this economic downturn some telecoms suppliers are willing to shell out big bucks to help their customers place orders.

The slope

Not only does it seem that many telecom suppliers have no memory of the telecom meltdown of 2000-2003, some are even making their sales along with a credit pitch. In a recent posting over at SeekingAlpha, Andrew Schmitt commented;

It is no secret that Huawei is aggressively taking global market share, particularly in second and third world nations. Many people mistakenly believe this is because it offera cheap prices. This is not always the case. What Huawei does consistently offer is attractive credit terms, and is often the only equipment vendor doing so. While Alcatel (ALA) and Ericsson (ERIC) still feel the vendor financing wounds of 2001-2, Huawei has no such memory.

Balancing view

All of this sounds great when describing the sales book, but in the long term it bodes poorly for an industry that has, in recent memory, suffered the painful financial consequences of the same behavior. It seems to us that avenue will be only open to suppliers with a pristine balance sheet and bags o’ money in the bank.

In a balancing viewpoint, Carl-Henric Svanberg, the CEO of Ericsson, at a press conference earlier last month stated;

There is an increased demand for financing, said Svanberg, adding, “we don’t do it on Ericsson’s balance sheet.

What to do

We think the prudent move would be to be enabling customers to seek credit in more traditional modes. Vendor financing never works unless that’s the prime business you are in. If you want to refresh your memory of the heady days leading up to the telecom crash at the turn of the century you might read Om Malik’s Broadbandits: Inside the $750 Billion Telecom Heist.

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  1. Posts about Om Malik as of March 9, 2009 » The Daily Parr:

    [...] about Om Malik as of March 9, 2009 Vendor Financing—Slippery Slope - 03/09/2009 A recent trend that we’ve been monitoring closely in the press is [...]

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