The Five Dumbest Things on Wall Street This Week

2. Delusions of Grandeur

Nortel (NT Quote) brings us another profile in courage this week.

The money-losing Toronto telephone-equipment supplier unveiled a grandiose strategic alliance with Microsoft (MSFT Quote).

The pact aims to "break down today's device- and network-centric silos of communication," such as email and phones. The companies say the unified communications partnership "has the potential to ultimately transform businesses communications," if you can imagine.

"This is a gutsy play for Nortel," Nortel chief Mike Zafirovski declares.

But basking in the glow of a stronger company is hardly a novel strategy. Last year, struggling Sun Microsystems (SUNW Quote) tried a similar ploy with Google, to little avail. Sun shares failed to hold early gains, finally nudging longtime chief Scott McNealy toward the exit.

And Sun looks downright luminous next to Nortel. While Nortel aims to wring $1 billion in revenue out of the Microsoft deal over four years, its core business is in steep decline. Sales have been hit by big phone-company mergers, and cost-cutting is in the air again. Shares are off 33% this year.

By contrast, Microsoft -- for all its flaws -- made $12.6 billion in fiscal 2006. But who's counting? Not Zafirovski, who is busy emphasizing the partners' supposed similarities.

"Nortel and Microsoft have each led fundamental transformations in their own market," he brazenly asserts. Incredibly enough, he cites a parallel between "Nortel's digital innovation and Microsoft's software on every desktop."

Gutsy? No, that's just shameless.

Dumb-o-Meter score: 90. Perhaps Nortel's most notable innovation of late is its groundbreaking triple restatement.