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Shares in Nortel Networks Corp. (TSX: NT) 1 have fallen 99.99% from their peak eight years ago. Bankruptcy talk is growing. Another possibility bandied about is a breakup and sale of parts to rivals.
Indeed, many Canadians appear to be assuming it’s virtually a done deal that Nortel is finished one way or the other. Some, burned by the huge losses on their Nortel shares, are even saying good riddance.
But do we really want to let Nortel disappear?
It is still, by far, Canada’s biggest spender on research and development in the corporate world: $1.85-billion in 2007. That’s 50% more than the second-biggest spender, according to data from Research Infosource Inc. 2
There are a lot of new ideas and product prototypes percolating within that idea factory. Of course, many of them are not earning a cent in revenues presently, but a few years down the road, they could be the basis for profitable business lines that add jobs, capital, export capacity, and wealth to the economy.
Nortel also continues to draw high rankings in product surveys by market-research and consulting firms. Recently, for example, consulting firm Gartner identified Nortel as a leader in the field of unified communications.
And the former technology star continues to win contracts. Mark Evans reported that Verizon Business selected Nortel on Nov. 13 to “help deliver a new telepresence offering that lets organizations collaborate over Internet Protocol networks.” And on Nov. 11 Nortel was selected as the “key vendor in the evolution of China Telecom’s CDMA network in seven provinces.”
Yet another interesting factoid: over 400 institutional investors still hold Nortel’s stock. Moreover, they have increased their stake over the past three months by 81 net buyers. As a result, the institutionals now hold 67% of the shares. Why, one might ask, are they holding and buying if there is nothing going on at Nortel?
There are now discussions going on in the U.S. and Canada about giving car manufacturers government assistance. But North America doesn’t have a comparative advantage in this industry. Foreigner suppliers have lower costs thanks, in large part, to access to lower-wage workforces.
The solution for the car companies, then, is not more government aid. The solution is either to get car makers’ production costs down or else facilitate the transfer of resources to industries where North America has comparative advantages.
Innovative products and services is an area where North Americans can compete and build national wealth. There is thus a much better case for providing aid to Nortel with its R&D facilities and capacity to generate new products.
To a large extent, Nortel is a victim of external forces that have climaxed of late into a Perfect Storm. Once these conditions normalize, Nortel could get back on track with its turnaround efforts under CEO Mike Zafirovski.
Before the credit crunch, there was the dramatic appreciation in the Canadian dollar from $0.65 (U.S) in 2003 to $1.10 (U.S.) last November. That made Nortel’s products in foreign markets rather uncompetitive. What if Canada had pegged its currency, like China did, to a low exchange rate with the U.S. dollar over this interval? Chances are Nortel would have been able to compete better against Chinese and other foreign telecom-equipment providers.
The financial crisis will not last forever. At some point, the dark clouds will move on. Throwing in the towel on the company because of a transitory downturn in circumstances may be like the investor who dumps their portfolio at the bottom of the bear market.
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