Vendor financing is an evil thing.

In its 10-Q filing for the first quarter



gave some details on just how insidious it can be to loan money to customers so they can buy your equipment. Motorola disclosed that of the $2.9 billion it has lent to carriers, a monstrous $2 billion of that was sent to Turkish telecom operator


, the No. 2 player in that market.

According to Motorola, Telsim missed a $728 million payment on its debt on April 30, 2001. (The $2 billion financing deal gives Motorola the option to sell 66% of Telsim shares, which were put up as collateral for the deal.) The wireless equipment vendor and Telsim are trying to renegotiate payment of the debt.

The financing tactics didn't pay off, leaving Motorola looking for its $728 million payment and all that equipment business it was trying to generate. Despite its efforts to attract easy money by helping customers pay the bills, Motorola's telecom solution segment sales dropped 5%, as orders fell by 14% in the first quarter.

"A year ago, the message was 'growth at any price, get those numbers up,' " says Todd Bernier of


, speaking about the pressure Wall Street put on equipment makers to increase revenues. "Last year they goosed the numbers by providing financing, and a year later they're getting those fingers pinched."

Companies across the technology spectrum are nursing their throbbing fingers. But Motorola's Telsim troubles are especially frustrating given that Motorola is not operating with a healthy cash flow that would allow investors to brush off $2 billion into limbo.

Motorola lost $591 million in its first quarter and expects to do so again in the second quarter. It had $4 billion in cash at the end of the first quarter on March 31. Equipment rival


(NOK) - Get Report

has been very open about letting its financing levels jump to $2.96 billion at the end of the first quarter as it helps wireless network operators pay for the upgrade costs to get the higher bandwidth and faster speeds third-generation (3G) wireless systems offer. Nokia expects that number to remain stable over the next two to three years.

"I've been the biggest bull on Nokia, but it worries me that they're lending the money they are," Bernier says. "The counter argument is they've got best balance sheet in the business, unlike Motorola,







Nokia had $4.7 billion in cash and investments at the end of the first quarter and generated $1.5 billion in cash flow from operations in the same period.

"I'm sure


would sell a whole lot of coffee if it lowered the price and helped people pay," Bernier cracked. These days Motorola is waiting for its $728 million from Telsim, and it doesn't have the growth that enticed it to sacrifice its balance sheet. Sounds like a painful deal.