Nortel is Now CTO-less

To no one's surprise Nortel's quarterly results stunk. Now there are more cuts. Is it enough? I have no idea, though I see that there many out there in the investment community who think not or have otherwise moved on from the likes of Nortel. From the tone of quotes in the media even their own employees seem to have lost hope, and interest.

I wrote about the past and future prospects for Nortel back in September, and I was not hopeful. I predicted then that Nortel would not survive the decade, and I still feel the same. Long time Nortel and technology watcher Duncan Stewart tells it like it is in this CBC article (an article which also happens to include quotes from a couple of employees):

"Every industry watcher is saying this a company that is almost certainly going to be broken up or sold entirely in the next 12 to 24 months."

Several top executives are also departing. Most distressing to my thinking is CTO John Roese, or, more specifically, the reason he gives in his blog for why his role is no longer required:

"Each of those BU's will be lean, focused and autonomous..."

From the few people I know who have had dealings with him he is reported to be intelligent, knowledgable, honest and competent. So what he says in his blog is worthy of scrutiny. I picked those few words out of a long blog post since it seems to support the view that Nortel will be dismantled.

If the business units (BU's) are to be independent that does two things. First, it declares that Nortel will no longer seek to be a system integrator and prime vendor to their large customers. This is one of the roles to which a revitalized Nortel might aspire, as I described in my September article. Second, a business unit that is disentangled structurally, financially and operationally from the others is the ideal preparation for selling it off.

Looked at this way, selling the successful MEN group makes sense; it would be the first of the reorganized three business units to be sold off in this fashion. This isn't entirely new ground for Nortel since they have in the past sold off 'non-strategic' product lines to other companies, including much of their access business.

So the final question I find myself asking is this: is Nortel a good investment? On the basis of the rest of this article the question may seem preposterous, but is nonetheless valid. We have to distinguish the company from the stock. If the company is in distress and is being sold off in pieces, and those pieces are worth more than the whole, or at least more than the current market price, it can be a good investment.

Unfortunately I don't know the answer to my own question. The stock may get much cheaper since their business is in decline, the telecom sector is in a funk, and their debt and pension obligations loom darkly. With the fear about Nortel's survival now motivating more commentators to tell people to stay away from the stock an attractive share price could come sooner rather than later.