Kedrosky Down on Nortel

Any discussion on the Canadian government bailing out Nortel by providing capital, or perhaps to faciltate NT going private? Save your golden child!

Canadian finance minister Jim Flaherty suggests Canada is not going to bail out its banks so not sure it can do anything for Nortel. Then again, there are a lot of jobs in Ottawa.

Mark, just curious, what would a bail-out look like in this scenario? Would it be similar to some of the recent US bailouts? Would the Canadian government take control of the board or senior management in any way? Sorry - it's a somewhat ignorant question, but I'm not familiar enough with the Canadian system to understand how such deals may play out.

Not sure but I highly doubt it would involve the Canadian government taking stake in Nortel or control of the board/senior management.

One scenario could be the federal government extending/supporting credit to Nortel through a body such as Export Development Canada. Nortel has worked with EDC in the past.

Another possibility is tax breaks for companies involved in the innovation economy.

Thank you. Guess it's kind of a moot point because it's not a likely scenario, but I appreciate your insight.

As I have been stating for the past 2 years, Nortel is trapped in a downward death spiral that ends with either bankruptcy or dismemberment by bargain basement asset sales. A novice management team has attempted to implement the wrong model and plan. The company now faces the perfect storm with declining market share, mediocre to poor products, poor distribution capabilities, and a bloated cost structure. Too many Nortel investors and company followers have been under the mistaken impression that the ability to deliver financial reports as mandated by securities laws and performed by all other public companies equates to the ability to deliver innovation and superior performance.

Kedrosky is correct about the credit situation. Telcos are going to have to deal with the double whammy of declining revenues and cash flow, and tighter credit
availability. As banks and financial companies like GE frantically attempt to conserve capital, they are cutting back on asset based financing - especially to financially strapped companies like Sprint and Qwest. This means that telcos will be slashing build out - just like from 2001 to 2003. This means that Nortel is staring at a sales decline in the sale of CDMA and optical equipment and services.

This company still has 32,000 mismanaged employees in too many facilities around the globe. It is still attempting to develop & market products for market spaces that have written off Nortel as a supplier. And now it is too late to save Nortel in its current state.

My prediction is that Nortel will not exit 2009 as a publicly listed & traded NYSE company. By mid 2009, this company will be either in the hands of the bond holders or in the process of being carved up by private equity firms.

Are you related to Kreskin?

Nortel is in big trouble and probably will not make it out of this as Nortel. I don’t know what Mike Z and his Team have planed, but anything that they do will not help shareholders. So if you are long, just write it all off. Has anyone noticed how the Nortel Buzz board does not allow anyone to ask any questions that are not directly related to pumping Nortel? Some of the other Nortel boards will let you post questions related to financials, but they never answer the questions other than in lofty fluffy terms. What a pathetic job Mike Z has done, all talk and the share price had just dropped month after month.

It is interesting to see the timing of various analyst comments about the current state of Nortel. Did they deliberately choose the timeframe where Nortel is in the Quiet Period before Q3 results, significantly limiting how Nortel Executives can respond? Did they also take a short position during this time so that they would have 2 or 3 weeks in which their statements can have negative impact against share price while they enjoy the benefits of the short and the strict limits on executive comments?

The timing here just seems a little odd to me. No doubt the Q3 call in early November will be interesting.

LOL - so someday I'll go to a tech museum and there gaze in rapt awe at the world-changing, earth-ratlling routing switch Nortel developed during its Quiet Period (within its Stark Period, within its Lean (6) Period) .

"It was 2009. The year of the greatest depression.

With the lights dimmed to save the ozone, the cubicles and warehouses emptied lower the rent , one Nortel engineer, under Quiet Guidance from above, his tongue planted in concerntration, using nothing but scrap wire, discarded hemp and NT missives printed on recycled stock discarded by the Unbelievers, single-handedly, in a group effort, hyperconnected telecommuncations into the stratosphere anon.
Nortel once again transformed how the world did business. And thats an understatement. The year was 2009"

I sure am awestruck.

NT stock manipulation continues.
NT closed on the NYSE at 1.69 US (Up 7.6%)
NT closed on the TSX at 1.78 CND (Down 0.6%) due to massive selling by someone with National Bank at the very end of trading.
1.69 US with the exchange rate of x 1.1498 = 1.943 CND which is what it would have ended close to had the National Bank (manipulator) seller not sold.

I saw that on the tech ticker. What a bunch of Bull !!! This guy Kedrosky has no idea what he is talking about.

The carriers are a mega cash flow generating machines. Their cash flow is also a guaranteed cash flow as most of the users (u and I) are under long term contracts. The carriers can get all the credit they want.

It was the infra. vendors such as NT that loaned money to carriers in the mid 90s to build their network and now the carriers will loan (not exactly loan but facilitate) to infra vendors so that their networks are up to date and have enough capacity.

Kedrosky is full of $%@^. He didnt even mention any metric based on which he claimed that infra. vendors have not come down enough. If you take a 10 year stock price study of most major Telecom infra. vendors, they are down anywhere from 10 to 30% from their stock prices 10 years ago. Majority of them are selling at way below 1 on P/S ratios.

"The carriers can get all the credit they want."

I think this is a way overly naive statement. Credit can be had at ridiculously -- some might say prohibitively -- high interest rates, but those interest rates will seriously hamper their bottom line. Their business models are going to be skewed way out of whack.

Kedrosky may be full of it, but I think he's closer to reality with his observation that carrier build-out is going to be seriously impacted by the credit crisis than the observation that it won't be.

What's going to be just as interesting is how the manufacturers who build the stuff to sell to the carriers (i.e. Nortel) handle the credit crunch. Carriers and their access to ready credit is only a small part of the overall picture. The manufacturers require credit to purchase raw parts from the parts vendors, and the parts vendors require credit to build the parts. They aren't typically flush with cash and have very slim margins. The credit crunch will likely drive these guys out of business, seriously impacting the chain of supply. Carriers won't be able to buy what can't be built.

There's going to be a lot of pain going around and Nortel is in a poor position to handle it.

It depends on the carrier

Just tell the employees to be sure they go to work with a jacques on.