Light Reading

Could CDMA Hurt Alcatel Lucent?

Craig Matsumoto
LR Mobile News Analysis
Craig Matsumoto
8/22/2006
50%
50%
Repost This

Another analyst has come out swinging against the merger of Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU), this time criticizing the companies' combined product lineup and the potential decline of Lucent's CDMA franchise.

Analyst Joe Chiasson of Susquehanna Financial Group voiced his concerns in a note issued this morning.

"The evidence that this is a questionable deal for Alcatel shareholders continues to mount, and we are compelled to speak for them even if they have not (yet?) spoken for themselves," Chiasson writes. For Lucent shareholders, though, "this is truly a case of 'Take the Money and Run,' " he adds.

Alcatel's shareholders will vote on the merger Sept. 7 -- the one-year anniversary of Chiasson's initiation of Lucent coverage with a Negative rating, which he hasn't changed.

So far, there's been no sign that Alcatel shareholders plan to vote against the merger, which was announced in April, and the majority of analysts seem to like the deal for both sides. (See Alcatel, Lucent Seal Deal.)

Some of the early concerns about the deal are resurfacing, however. Analyst Per Lindberg of Dresdner Kleinwort released a series of short notes last week opining that Alcatel shareholders should be throwing rotten fruit at the deal, or at least complaining about the price Lucent is commanding. (See Analyst: Alcatel Should Rethink Things.)

Lindberg's concerns included Lucent's pension fund. But Chiasson's thoughts strike more directly to the heart of the merger: What, he asks, does Alcatel get out of Lucent's products?

"We contend that the most recent, and arguably most compelling evidence against this deal is the trend emerging in the CDMA infrastructure market," he writes. "The facts do indeed suggest the long-term outlook for CDMA is quietly and quickly growing cloudy."

CDMA accounts for 45 percent of Lucent's revenues and 70 percent of its operating profits, according to Chiasson -- yet CDMA is on the decline. Of the top 20 CDMA-based service providers, 12 are dabbling with other radio access network technologies, by Chiasson's count. That includes Sprint Corp. (NYSE: S), which recently announced an ambitious WiMax plan. (See Sprint Goes WiMax.)

A year ago, Chiasson believed Lucent's CDMA business would grow 8 to 9 percent per year. "We now believe a 5 percent year-over-year decline would be a far more realistic assessment," he writes (including the emphasis).

Lucent offered a different opinion in its July earnings call, with CEO Pat Russo saying the CDMA market could remain strong. She noted CDMA2000 1xEV-DO Rev A upgrades happening at Verizon Wireless and, uh, Sprint Nextel -- which, in all fairness, did beef up its Rev A plans after the Lucent call. (See Lucent's Russo: Don't Panic! and Sprint Speeds Rev A Rollout.)

Beyond CDMA, Chiasson is concerned about product overlap: "The elimination of 'duplicate' products often introduces uncertainty into the associated revenue stream, such that forecasted synergies are often not what they seem."

Chiasson runs down a few areas where product cancellations look likely but could make for unhappy customers. Both companies have WCDMA platforms, suggesting either Cingular Wireless or Orange SA (London/Paris: OGE), their two main customers, will have to change. (See Alcatel, Lucent Face 3G Decision.) In optical, Alcatel could cancel Lucent's DMX multiservice provisioning platform, but that would risk the wrath of customer BellSouth Corp. (NYSE: BLS)

Other affected areas include the access market, where Lucent's Stinger DSLAM would appear to lose out to Alcatel's 7302 ISAM, and VOIP, where both companies have softswitches.

In a written statement, an Alcatel spokesman says the companies believe they've got a good fit: "From the day the merger was announced, we have been consistent in our assertion that we feel the two companies share the same vision and excellent geographic, product portfolio and customer synergies."

Chiasson believes the Alcatel Lucent deal will get done, "if for no other reason than Lucent's need for this deal is obviously at its highest point." But chalk him up as another voice suggesting a repricing of the deal. Chiasson thinks a ratio of 0.155 to 0.167 Alcatel shares to Lucent shares would be proper, as opposed to the 0.1952 Alcatel/Lucent ratio up for vote.

"We've been very very bullish that we will not reprice the deal," an Alcatel spokesman tells Light Reading, adding that Alcatel has taken Lucent's short-term risks into account.

The merger agreement includes no vehicle for changing the exchange ratio, by the way, so it appears the price can't move unless Alcatel shareholders reject the deal.

— Craig Matsumoto, Senior Editor, Light Reading

(0)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
Flash Poll
LRTV Custom TV
Maximizing Customer Experience & Assuring Service Delivery in an IP World

4|15|14   |   4:57   |   (0) comments


Steven Shalita, VP of Marketing, NetScout Systems, Inc., discusses the challenges cable/MSO operators face in assuring the delivery of new IP-based services. Key points include the value of proactively managing performance, and using rich analytics and operational intelligence to better understand service and usage trends, make smarter business decisions and ...
LRTV Documentaries
Bye-Bye DVD: Consumers Embrace Digital Video

4|10|14   |   04:17   |   (6) comments


Veteran video analyst Colin Dixon, founder and principal analyst of nScreenMedia, says research shows 56% are using digital video already.
LRTV Documentaries
Video: TW Cable Puts Multicast Gateways to the Test

4|8|14   |   04:13   |   (1) comment


Tom Gonder, a chief architect at Time Warner Cable, explains how its trial of multicast gateways is impacting IP-based video plans.
LRTV Custom TV
Managing & Monetizing Big Data in Operator Environments

4|7|14   |     |   (1) comment


At Mobile World Congress, Gigamon's Director of Service Provider Solutions, Andy Huckridge, and Heavy Reading Analyst Sarah Wallace discuss the 'big data' issues facing carriers and operators today.
LRTV Huawei Video Resource Center
Data Center Energy – Build Your Data Center in a Modular Way

4|7|14   |   2:13   |   (0) comments


Dr. Fang Liangzhou, VP Network Energy Product Line, shared his thoughts about the challenges for data centers during CeBIT 2014.
LRTV Huawei Video Resource Center
Agile Network Solution – An Overview of Huawei's Agile Network Solution

4|7|14   |   2:31   |   (0) comments


Ajay Gupta, Director of Product Marketing, Networking Product Line, gives an overview of the Agile Network Solutions during CeBIT 2014.
LRTV Huawei Video Resource Center
Huawei’s eLTE Voice Trunking, Video and Data Applied for Railways

4|7|14   |   1:38   |   (0) comments


Gottfried Winter is the Sales Director at Funkwerk, a German specialist in GSM-r terminals and a long-time partner of Huawei. At CeBIT 2014, Winter talks to Light Reading about this partnership and the integration of enhanced voice trunking, video and data functions.
LRTV Huawei Video Resource Center
LeaseWeb Speaks Highly of Huawei's Datacenter Products

4|7|14   |   1:37   |   (0) comments


Rene Olde Olthof, Operations Director LeaseWeb, talks about the next data center transformation during CeBIT 2014.
LRTV Documentaries
Comcast: Reshaping the Cable Network Architecture

4|3|14   |   07:11   |   (8) comments


Shamim Akhtar, Comcast's architect and senior director of network strategy, explains why the cable company is moving to a more distributed network architecture.
LRTV Custom TV
VMware CEO Pat Gelsinger at Mobile World Congress

4|1|14   |   3:41   |   (0) comments


VMware CEO Pat Gelsinger speaks to Heavy Reading about the value of virtualization spanning from the data center to service provider networks to mobile devices.
LRTV Huawei Video Resource Center
Analysts' Impressions of Huawei SoftCOM at ONS 2014

4|1|14   |   1:11   |   (0) comments


After visiting the Huawei booth at ONS, Lee Doyle of Doyle Research gives his appraisal of Huawei's SoftCOM solution.
LRTV Huawei Video Resource Center
Analysts' Impressions of Huawei SoftCOM at ONS 2014

4|1|14   |   1:26   |   (0) comments


After visiting the Huawei booth at ONS, Rick Talbot of Current Analysis gives his appraisal of Huawei's SoftCOM solution.
Hot Topics
China's Innovation Deficit
Robert Clark, 4/9/2014
Businesses Face 'Fiber Gap': Report
Dan O'Shea, Managing Editor, 4/9/2014
BlackBerry's Chen: We're Not Dumping Devices
Dan Jones, Mobile Editor, 4/10/2014
AT&T's Going to Carolina With 1 Gig
Sarah Reedy, Senior Editor, 4/10/2014
Cisco, Juniper Treating Gear Against Potential Heartbleed
Dan O'Shea, Managing Editor, 4/11/2014
Like Us on Facebook
Twitter Feed