Light Reading

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

Dan O'Shea

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
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."
From The Founder
The comms industry is rallying to the cause of open, independent interoperability testing.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
LRTV Interviews
Top Tips for FTTH Operators

10|8|15   |   02:26   |   (0) comments

At Gigabit Europe 2015, Ventura Team co-founder Richard Jones talks about some of the key business case considerations for FTTH network operators.
LRTV Interviews
M-net Calls for FTTx Unity

10|8|15   |   03:45   |   (0) comments

At the Gigabit Europe event, Jörn Schoof from M-net, the Munich city network operator, calls for industry collaboration on fiber broadband access rollouts.
LRTV Documentaries
The Business Case Challenge for NFV

10|7|15   |   03:47   |   (0) comments

Virtual CPE is one of the early success stories for network functions virtualization, as service providers are finding flexible, programmable CPE solves a lot of logistics problems and reduces their cost. But even here, Masergy Communications faced a business case challenge, says CTO Tim Naramore.
LRTV Interviews
JT Offers Some Gigabit Lessons

10|7|15   |   4:08   |   (1) comment

Barna Kutvolgyi, managing director, Global Consumer, at JT, the incumbent operator on the island of Jersey, talks about how other service providers can learn from his company's gigabit broadband rollout experiences.
LRTV Interviews
AT&T's Chiosi on the Potential of Open Source

10|6|15   |   06:27   |   (0) comments

AT&T Distinguished Network Architect Margaret T. Chiosi talks to Light Reading's Carol Wilson about the potential for open source technology to liberate communications service providers.
LRTV Interviews
Network Security in a Gigabit World

10|6|15   |   05:52   |   (0) comments

Masergy's James Harrison talks about some of the network security and data center issues network operators need to consider as they expand their broadband services portfolios.
LRTV Documentaries
Telefónica: In Search of Virtual Simplicity

10|5|15   |   07:30   |   (0) comments

Francisco-Javier Ramon Salguero, head of Telefónica's NFV initiative, admits virtualization initially means greater complexity, but with the right abstraction layer, it is possible to create a services-driven network architecture. He explains how Telefónica's current trials and initiatives are aimed at doing that, and what his company and other carriers need to ...
LRTV Interviews
Gigabit Europe Takeaways

10|5|15   |   03:47   |   (0) comments

Participants from the inaugural Gigabit Europe event in Munich share their key takeaways from the conference.
Women in Comms Introduction Videos
Intel Urges Women to Take Advantage of Their Seat at the Table

10|5|15   |   4:27   |   (1) comment

Have inclusive and constructive conversations, attach a bigger meaning to your work and get involved in the cause, Intel's Monique Hayward advises women in comms.
LRTV Interviews
BT Updates on Plans

10|2|15   |   03:16   |   (2) comments

Peter Bell, CIO at Openreach, the access network division at UK incumbent BT, provides an update on the operator's trials and how Openreach is planning to deploy the broadband technology in its street cabinets.
Telecom Innovators Video Showcase
Sonus Shakes Up SD-WAN

10|2|15   |   7:22   |   (0) comments

Sonus CTO Kevin Riley sat down with Light Reading to discuss the trajectory of the company, its SDN ambitions and why Sonus is taking a market-disruptive approve to SD-WAN.
LRTV Interviews
CityFibre's Gigabit Vision

10|1|15   |   03:18   |   (1) comment

Mark Collins, director of Strategy & Public Affairs at competitive UK city network operator CityFibre, talks about his company's plans to help build Gigabit Cities.
Upcoming Live Events
October 14-15, 2015, New Orleans Ernest N. Morial Convention Center, New Orleans, LA
November 5, 2015, Hilton Santa Clara, Santa Clara, CA
November 17, 2015, Santa Clara, California
December 1, 2015, The Westin Times Square, New York City
December 2, 2015, The Westin Times Square, New York City
All Upcoming Live Events
Network appliances have a strong value proposition in today's networks and will continue to do so in the NFV and SDN-enabled networks of tomorrow.
Hot Topics
Eurobites: Dunroamin'
Paul Rainford, Assistant Editor, Europe, 10/2/2015
M&A Speculation Swirls Around Juniper
Ray Le Maistre, Editor-in-chief, 10/6/2015
Cisco's Chambers Rules Out Political Bid
Mitch Wagner, West Coast Bureau Chief, Light Reading, 10/6/2015
Infinera Fleshes Out Its Metro 100G Story
Ray Le Maistre, Editor-in-chief, 10/7/2015
AT&T Gets Green Light for VoWiFi
Brian Santo, Senior editor, Test & Measurement / Components, Light Reading, 10/7/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
With so many new and exciting communications technologies now under development, it's easy to get caught up in the industry's escalating hype cycle. That's why the ...
Last week saw a big day in the 15-year history of Light Reading when Editor-in-Chief Ray Le Maistre and I were invited to interview the Deputy Chairman and Rotating ...
Cats with Phones
"What?! I'm on with Finisar about their stock price tanking" Click Here