There are about 1,500 high-tech companies in the Ottawa area alone, and about 30% of them can trace their roots to Nortel Networks Corp. (NT), according to Doyletech Corp.

"It's a grim day in Canada," said Glenn McDougall, managing partner at Doyletech, a technology research firm based in Ottawa.

Nortel, which less than 10 years ago comprised more than one-third of the value of the S&P/TSX Composite Index, said Wednesday it's seeking protection from creditors in Canada and the U.S.

The networking-equipment firm is a shadow of its former self, but still spends about C$1 billion annually on research and development and serves as an incubator for some of Canada's top technology minds. If it disappears completely, or if a foreign buyer moves the firm's research and development laboratories out of Canada, the result could be a massive brain drain, analysts said.

"The benefits (of Nortel) to Canada aren't just that C$1 billion (in annual R&D spending)," said Lawrence Surtees, an analyst at IDC Canada. "It acts, in effect, as an employment engine for highly trained, high-tech graduates from Canadian universities. If it were to no longer be here, or have labs here, that to me would be the greatest blow from a bankruptcy."

Nortel alumni have for decades gone on to create successful Canadian high-tech companies, and that value-creation process is now at risk, analysts said.

Surtees noted that Terence Matthews and Michael Cowpland, two of Canada's best-known high-tech entrepeneurs, met while working for Nortel. Cowpland went on to form Corel Corp. (CREL), a software company that once went head-to-head with Microsft Corp. (MSFT) in the word-processing sector. Matthews founded several successful communications companies, including Newbridge Networks Corp., which was acquired by Alcatel, and Mitel Corp.

Doyletech has compiled a massive family tree that lists companies that can trace their roots back to Nortel's research arm, originally known as Bell Northern Research. Among the publicly traded companies on the list are: Tundra Semiconductor Corp. (TUN.T), Zarlink Semiconductor Inc. (ZARLF), March Networks Corp. (MN.T), Mosaid Technologies Inc. (MSD.T), Dragonwave Inc. (DWI.T) and JDS Uniphase Corp. (JDSU).

 
   Talent Available To Other Cdn Tech Companies

While the disappearance of Nortel could spark an exodus of talent from Canada, it would also provide Canadian companies with a large talent pool from which to draw.

"If (Nortel) goes away, a lot of people in technology will be looking for things to do," Mitel Chief Executive, Donald Smith, told Dow Jones.

In addition, the disappearance of Nortel would mean Mitel and other communications companies would have one fewer formidable competitor to worry about, Smith said.

Nevertheless, Smith added that he takes no pleasure from Nortel's plight. A former Nortel employee himself on two occasions, Smith said he learned a lot working there and counts many current Nortel employees as neighbors and friends. "Nobody can look at (Nortel's bankruptcy filing) and take any joy in it," he said.

While Nortel is in dire straits, the company will continue to operate, at least in the near term, said Duncan Stewart, director of research at DSAM Consulting, a technology research firm in Toronto. Indeed, under bankruptcy protection, Nortel will no longer be under pressure from creditors to cut costs, meaning it may be able to spend more on research and development, he said.

Stewart also suggested that the Canadian government may look to step in and bail out Nortel in hopes of saving Canadian jobs.

In a statement Wednesday, Canada's Minister of Industry, Tony Clement, said the government of Canada "appreciates the importance of the telecommunications industry to our economy and will continue to work with Nortel during its restructuring through Export Development Canada."

EDC agreed Wednesday to provide up to C$30 million in short-term financing through its existing bonding facility and is open to discussing with Nortel post-filing financing in conjunction with other financial institutions, Clement said in the statement.

   Company Web Site: http://www.nortel.com 
 
   -Stuart Weinberg, Dow Jones Newswires; 416-306-2026; 
   stuart.weinberg@dowjones.com

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