Tuesday, May 5, 2009

Nortel: Good Speculative Stock, Why Do Governments Invest in Auto Companies Instead?

There was an excellent letter by James Craig to the Ottawa Citizen last weekend "McGuinty fiddles with GM while Nortel's fire sale burns". Mr. Craig is a former President of the Broadband division at Nortel. He argues that while the governments are so intent in saving the car industry, it does nothing to keep Nortel and all its benefits to Canada. While his main target is the Ontario government, the same argument applies to the Federal governent which has apparently now acquired a stake in Chrysler, a company that may still well soon be cease to exist given the illegality of the proposed deals to save it.

At this point the number of employees that remain with Nortel is comparable with those of GM in Canada, and both companies generate other employment and business through suppliers and 3rd parties, but this is not the only important factor. Sure, management made many mistakes. The fact is however, that Nortel spawned the launch on thousands of high-tech companies in Canada, generating in turn many thousands of employees, and taxes. Equally important, Nortel made Canada achieve countless advancements in technology. This is all about to end and is something that will be extremely difficult to be replaced or repeated.

From a speculative point of view, Nortel's divisions will be sold at any moment now. Some of these divisions will fetch a large sum of money. The price of the stock will likely pop on the news. At $0.23, it is a good (unfortunately) speculative stock.

"J. A. Craig, a former senior Nortel executive, writes that Premier Dalton McGuinty should consider an equity stake in Nortel to help save the Canadian company.
Photograph by: Pat McGrath, The Ottawa Citizen, The Ottawa Citizen
Re: End game at Nortel, April 29.
Jim Bagnall's excellent exposé of the Silence of the (political) Lambs during this death spiral of Nortel, is all the more irritating considering the support that is being thrown at General Motors, which, like Nortel, is suffering from a "self-inflicted" wound.
Nortel's wound is the incompetence of the executive management, not the world class technology the Ottawa R&D teams continue to deliver. At least Nortel has a leading edge portfolio and brand name recognized worldwide, for decades, as being competitive with the best.
General Motors for years peddled an uncompetitive portfolio in North America alone and sported unenlightened management. Nortel is a Canadian company; GM Canada is a subsidiary of a U.S. corporation. Nortel's jobs are high tech; GM's are assembly line. High tech is a growth industry in the information age; automotive is not. High tech is green technology; automotive is not.
Winning for Canada is not about size, but about punching above your weight in market share, world wide, niche by niche. Nortel pioneered this and RIM has followed suit. The lab talent and industry savvy management, without the 'Z Factor' can do this again.
Yet Premier Dalton McGuinty "suggests" that Ontario would take an equity stake in GM Canada? How? It is not traded.
What then is wrong with an equity stake in Nortel, Dalton, which is traded and could be saved as a Canadian entity, with a little bit of provincial interest and encouragement? What say you, Dalton -- what about some equality here?
The knackers yard for Nortel condemns a generation of talented graduate engineers in your backyard to vote with their feet and leave for greener pastures elsewhere; I guess they are knackered too.
After all, that is what the Silence of the Lambs is all about, isn't it?
J.A. Craig,
Former president
Nortel Broadband"

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