& cplSiteName &

Could CDMA Hurt Alcatel Lucent?

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

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        ADD A COMMENT
From The Founder
The independent evaluation of Nokia's key virtual network functions (VNFs) was a defining moment for the Finnish giant.
Flash Poll
Live Streaming Video
Charting the CSP’s Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it’s going from two industry veterans.
LRTV Custom TV
Cisco's Innovations in Cable

5|26|16   |   03:18   |   (0) comments


Marc Aldrich from Cisco discusses the latest in security, the evolution and momentum for CCAP and what the industry will be seeing next from Cisco.
LRTV Documentaries
Leading Lights 2016 Highlights

5|25|16   |   02:26   |   (1) comment


Some of the high points from this year's Leading Lights awards dinner at the Hotel Ella in Austin, Texas.
LRTV Documentaries
Light Reading Hall of Fame 2016

5|23|16   |   05:43   |   (0) comments


Find out who has been welcomed into Light Reading's Hall of Fame this year.
LRTV Custom TV
ZTE TM Forum Highlights

5|23|16   |     |   (0) comments


ZTE showcased its new ICT solutions at TM Forum in Nice.
LRTV Interviews
Gamma's MD on the Emergence of UC2

5|20|16   |     |   (0) comments


Gamma Communications Managing Director David Macfarlane believes the unified communications (UC) market has reached a tipping point.
LRTV Custom TV
The Ultimate 5-Minute Guide to Digital Customer Engagement

5|20|16   |     |   (0) comments


In this short video, you will hear all about how Digital Customer Engagement is the key to meeting customer expectations, keeping them happy, and maximizing revenue. VP Product & Marketing at Pontis, Ofer Razon, breaks down for us the five essential capabilities for successful Digital Customer Engagement. Don’t miss!
LRTV Custom TV
NFV in 2016: Part 1 – NFV Use Cases Get Real

5|19|16   |   05:57   |   (0) comments


Consensus is building around the key use cases for NFV, including managed IP services at the network edge and on customer premises, which can generate new revenues from enterprises/SMBs and consumers; Evolved Packet Core to support LTE migration; and adjacent technologies, such as TAS and IMS, to support VoLTE and next-generation charging and policy control ...
LRTV Custom TV
Nokia's Steve Vogelsang on NFV – Part 3

5|19|16   |     |   (0) comments


Steve Vogelsang discusses the challenges of operational transformation and how Nokia helps its customers. Join Steve at the Big Communications Event in Austin the morning of May 24, on his keynote and optical networking panel.
LRTV Interviews
Level 3: Why UC Is In Demand

5|17|16   |   04:12   |   (1) comment


Andrew Edison, Level 3's senior VP of sales, EMEA region, talks about the drivers of growth in the unified communications services market.
LRTV Custom TV
ARM's OPNFV Action

5|17|16   |     |   (0) comments


At the ARM booth at MWC 2016, Joe Kidder and Bob Monkman speak to Light Reading about OPNFV and their upcoming action.
LRTV Custom TV
Nokia's Steve Vogelsang on NFV – Part 2

5|16|16   |     |   (0) comments


Steve Vogelsang gives advice to service providers on how to move to NFV. Join Steve at the Big Communications Event in Austin the morning of May 24, on his keynote and optical networking panel.
LRTV Interviews
Interoute CTO on NFV's Maturity

5|13|16   |   06:46   |   (1) comment


Matt Finnie, CTO at international operator Interoute, explains how NFV has made life easier in terms of logistics and how Interoute can now enable a 'software-defined moment' for its customers.
Upcoming Live Events
September 13-14, 2016, The Curtis Hotel, Denver, CO
December 6-8, 2016,
June 16-18, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
A new survey conducted by Heavy Reading and TM Forum shows that CSPs around the world see the move to digital operations as a necessary part of their overall virtualization strategies.
Hot Topics
DT: Telcos Must Escape Vendor Prison
Iain Morris, News Editor, 5/24/2016
AT&T to Start 5G 'Friendly' Trial by 2016 End
Dan Jones, Mobile Editor, 5/24/2016
Cisco's Patel Hails 'Microculture' Successes
Iain Morris, News Editor, 5/26/2016
Cable Is Eyeing Its Retail Options
Mari Silbey, Senior Editor, Cable/Video, 5/25/2016
AT&T's Margaret Chiosi Retires
Ray Le Maistre, Editor-in-chief, 5/25/2016
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
In this latest installment of the CEO Chat series, Craig Labovitz, co-founder and CEO of Deepfield, sits down with Light Reading's Steve Saunders in Light Reading's New York City office to discuss how Deepfield fits in with the big data trend and more.
Grant van Rooyen, president and CEO of Cologix, sits down with Steve Saunders, founder and CEO of Light Reading, in the vendor's New Jersey facility to offer an inside look at the company's success story and discuss the importance of security in the telecom industry.
Animals with Phones
Live Digital Audio

Our world has evolved through innovation from the Industrial Revolution of the 1740s to the information age, and it is now entering the Fourth Industrial Revolution, driven by technology. Technology is driving a paradigm shift in the way digital solutions deliver a connected world, changing the way we live, communicate and provide solutions. It can have a powerful impact on how we tackle some of the world’s most pressing problems. In this radio show, Caroline Dowling, President of Communications Infrastructure & Enterprise Computing at Flex, will join Women in Comms Director Sarah Thomas to discuss the impact technology has on society and how it can be a game-changer across the globe; improving lives and creating a smarter world. Dowling, a Cork, Ireland, native and graduate of Harvard Business School's Advanced Management Program, will also discuss her experience managing an international team focused on innovation in an age of high-speed change.