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No. of Recommendations: 24
Required disclosure: I own all of them with NOK currently the largest single investment in my portfolio.

You know when TMF's rulemakes started this series I couldn't believe it since TMF was going to do all the rigourous financial analysis the companies I loved for other more fuzzy reasons (the fact that SNRA QCOM and AT&T dropped out early doesn't surprise me). So here's my fuzzy take on the three. Of course its more fun in that the company I work for (Nortel networks) is a customer/competitor of JDSU, a supplier to C&W and a competitor to NOK.

Nokia is without a doubt mr Cell phone. I'm writing this at the Nortel Europe sales conf in Disneyland Paris and continuing my survey of cell-phones a) everyone has one and b) at least 50% are Nokia ones. Nokia is the global leader in cell phones and while its net margins may be slightly imperfect thats about the only defect its got. In my simplistic understanding RuleMakers are de facto monoplies and Nokia has that level of cellular handsets and a good second place in bese stations.

JDSU is the monopoly supplier of fibre componants. Its getting so bad that potentially there could be anti-trust discussions. Since Cisco, Microsift and Intel have all had these worries I can see this as being an absolute classic sign of rulemakerdom. So will some anti-trust set of busybodies complain? I reckon not and here's why: JDSU's customers and their customers' customers aren't complaining. In order for the DoJ and friends to get in the act you need to have some unhappy consumers and there ain't no such animal as far as I can tell. At the moment anything that will let C&W, MCI and the rest install more bandwidth quicker is good and the ETEK merger should allow the new combined organization to supply more stuff than the two individual companies could. Given that there is such screaming demand for componants you would have to be a brain dead lucent exec to actually complain thet your suppliers were becoming more efficient. In other words subjectively JDSU is maybe even more of a rule maker than NOKIA.

So how about cable and wireless? This is the company that I have been most disappointed with, although recently it seems to have sorted it self out a bit and maybe its going to sort the rest out. The important thing about C&W is that it is #3 (ish maybe #2) in terms of the internet backbone. Take a look at and in particular to see where C&W is in terms of the internet. It gets worse in the rest of the world outside the US since Sprint doesn't really extend out so C&W is either #1 or #2 (behind UUnet). The fact that it currently generates obscene amounts of cash providing monopoly dialtone in verious parts of the world is just useful because it gives it the cash base to grow the rest of its business. Just as UUnet will (IMO) be the next major profit center for MCI worldcom, C&W's internet arm will be the next growth center for C&W. If C&W continues to execute correctly we will see it as meaningful competition for MCI (Uunet), which could do with some competiton otherwise it really will get a visit from the feds.

So whihc one should TMF buy? Well TMF shouln't buy C&W until we are sure of its strategy and are sure of its financials. While I don't require US GAAP reporting for my investments TMF should think hard about breaking this rule for the rulemaker portfolio. On the other hand the sister ruleshaker port might well want to consider it. Then there is the stratgey and execution - its got good ideas but it could be more of a coke than a cisco. While I'm personally happy to hold the company its one of those that is permenantly on my watch list rather then one of those that I buy and forget. Nokia and JDSU on the other hand are solidly in the buy and forget category. Both are multibaggers and both have excellent management who can explain what they are doing, why they are doing it and how this will help the company. However, if I'm forced to pick I'll pick Nokia because its the bigger company of the two. While JDSU is a great company its currently got a market cap of $50bn compared to Nokias $200bn. Nokia's size - it is singlehandedly something like 50% of the Helsinki stock exchange - and consumer brand name means that its more of a rule maker than JDSU - for now. A year from now JDSU will probably be big enough and well-known enough.

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