& cplSiteName &

Short Shift: Analyst Doubts AlcaLu's Cost-Cutting Ability

Dan O'Shea
2/3/2014
50%
50%

Entering 2014, Alcatel-Lucent (NYSE: ALU) looked like the living definition of a rebounding company, having seen its stock price more than triple in the past year, while making progress selling non-core properties and reducing costs under its much ballyhooed Shift Plan.

Yet, one analyst expects the company to achieve less than two-thirds of its Shift Plan goal of €1 billion (about $1.34 billion) in cut costs by 2015.

George Notter, managing director of equity research for communications infrastructure at Jefferies & Co. Inc. , writes in a research note that the vendor's cost savings goals are "aggressive," and, "We expect the organization to fall short of the €1 billion target."

Notter notes that current Wall Street expectations are for Alcatel-Lucent's cost reductions to fall more in the range of €795 million by next year, but he's aiming even lower.

"Our model assumes the company generates roughly €650 million in cost savings with operating margins running from a normalized 0.1% currently to 4.9% in 2015," Notter writes. "By our estimates, most of the improvement comes from better execution of the business (per our analysis of margin structures at industry benchmark companies)."

Notter's take is that poor management execution was largely at fault for historically poor margins, though he believes that there is, under newish CEO Michel Combes, "room for margin expansion based on better management of the business." However, he also says the vendor's diversity of products and of customers could work against its ability to become a more streamlined organization.

Comparing Alcatel-Lucent's Shift Plan to the massive cost-cutting efforts of another vendor giant, Nokia Networks , Notter writes, "In particular, we believe that Alcatel-Lucent's significant customer relationships across a myriad of major product categories will prevent them from ultimately getting as narrowly-focused as NSN. As such, we expect their upside scenario on operating margins to not be as high as NSN's."

That said, Notter believes Alcatel-Lucent is "headed in the right direction... Combes is shaking up the business and refocusing the organization on what's most important -- profitability and cash flow... Employee morale has improved significantly and they're winning new deals globally."

However, that still doesn't add up to as positive a story as Notter would like to see.

Alcatel-Lucent will report its fourth quarter and full year 2013 financials on Feb. 6.

Combes announced the Shift Plan last summer, and, in the last half of 2013, the company moved fairly quickly to act on some of its goals. It sold its LGS Innovations government-focused unit, and reportedly has been looking to sell its enterprise business. It also announced plans to cut 10,000 jobs by the end of 2015. It recently transferred about 170 jobs to a French engineering firm.

For more on Alcatel-Lucent's recent developments, see:

— Dan O'Shea, Managing Editor, Light Reading

(1)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
DOShea
50%
50%
DOShea,
User Rank: Blogger
2/4/2014 | 10:18:13 AM
Stock price
To be clear, almost tripling from around $1.50 a share at the open of 2013 to around $4.60 at the end of the year is something, but still left ALU well behind many other similar companies on the market. Notter's latest rating, to go along with the tone of his note, is "underperform."
Featured Video
From The Founder
Light Reading founder Steve Saunders grills Cisco's Roland Acra on how he's bringing automation to life inside the data center.
Flash Poll
Upcoming Live Events
March 20-22, 2018, Denver Marriott Tech Center
March 22, 2018, Denver, Colorado | Denver Marriott Tech Center
March 28, 2018, Kansas City Convention Center
April 4, 2018, The Westin Dallas Downtown, Dallas
April 9, 2018, Las Vegas Convention Center
May 14-16, 2018, Austin Convention Center
May 14, 2018, Brazos Hall, Austin, Texas
September 24-26, 2018, Westin Westminster, Denver
October 9, 2018, The Westin Times Square, New York
October 23, 2018, Georgia World Congress Centre, Atlanta, GA
November 8, 2018, The Montcalm by Marble Arch, London
November 15, 2018, The Westin Times Square, New York
December 4-6, 2018, Lisbon, Portugal
All Upcoming Live Events
Hot Topics
Federal Funds for Broadband? Unlikely
Mari Silbey, Senior Editor, Cable/Video, 2/12/2018
Has Europe Switched to a Fiber Diet? Not Yet...
Ray Le Maistre, Editor-in-Chief, 2/15/2018
Net Neutrality: States' Rights vs. the FCC
Mari Silbey, Senior Editor, Cable/Video, 2/13/2018
Will China React to Latest US Huawei, ZTE Slapdown?
Ray Le Maistre, Editor-in-Chief, 2/16/2018
IBM, Microsoft Duke It Out Over Chief Diversity Hire
Sarah Thomas, Director, Women in Comms, 2/15/2018
Animals with Phones
Live Digital Audio

A CSP's digital transformation involves so much more than technology. Crucial – and often most challenging – is the cultural transformation that goes along with it. As Sigma's Chief Technology Officer, Catherine Michel has extensive experience with technology as she leads the company's entire product portfolio and strategy. But she's also no stranger to merging technology and culture, having taken a company — Tribold — from inception to acquisition (by Sigma in 2013), and she continues to advise service providers on how to drive their own transformations. This impressive female leader and vocal advocate for other women in the industry will join Women in Comms for a live radio show to discuss all things digital transformation, including the cultural transformation that goes along with it.

Like Us on Facebook
Twitter Feed