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Should the two giants get wed, other mega-mergers could follow close behind, says analyst

Alcatel/Lucent: The Domino Factor

Ray Le Maistre
3/24/2006
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With Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU) admitting to merger talks, questions arise about the implications of such a marriage on the rest of the telecom equipment segment. (See Lucent, Alcatel Rekindle the Flame and Lucent & Alcatel: Quigley or Russo?)

A combined Alcatel/Lucent would generate revenues of more than $25 billion a year, at current rates, and be a formidable competitor in just about every telecom segment, from the edge of the network all the way to a next-generation core. (See Alcatel Pays Up and Lucent Cuts 2006 Outlook.)

That includes mobile infrastructure, where Lucent is the market leader in CDMA equipment and Alcatel has built a position in GSM/UMTS. Combining the two would make for a major global player, says Patrick Donegan, senior analyst at Heavy Reading.

"From a wireless perspective, a combined Lucent and Alcatel would be a clear global number two behind Ericsson. It would be number one in CDMA and be approaching a 10 percent share in GSM, with strong momentum in the key emerging market opportunities. In W-CDMA it would have strong account presence in Cingular Wireless and Orange SA (London/Paris: OGE) as well as good prospects in China, Russia, and India. And it would also have a presence in WiMax," says Donegan. (See Lucent, Cingular Prep HSDPA and Alcatel Supplies Orange).

So what sort of impact might such a combination have on the equipment sector? Donegan reckons it could light a fire under some of the other vendors.

“Once one of these big deals is done, that could trigger others to happen a lot more quickly than is generally thought. The case for Nortel Networks Ltd. and Siemens Communications Group combining remains strong," says the analyst. (See Sources: Lucent, Nokia in Play for Siemens.)

Donegan believes vendor combinations that are strong in fixed and wireless, and which have significant footholds in European and North American carriers, make a lot of sense. And that could leave some of the other vendors vulnerable.

"As wireline and wireless networks begin converging, perhaps the greatest uncertainty surrounds Nokia Corp. (NYSE: NOK) and Motorola Inc. (NYSE: MOT) and whether they will look to commit further to the infrastructure market or else exit altogether,” he adds.

The list of companies affected by an Alcatel/Lucent combo doesn't stop there, with Cisco Systems Inc. (Nasdaq: CSCO), Ericsson AB (Nasdaq: ERIC), and Juniper Networks Inc. (NYSE: JNPR) all likely to consider their strengths and weaknesses in a new vendor world, while Chinese companies Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) could also come into play -- though few industry watchers feel Huawei is ready to open itself to greater financial scrutiny at present.

And there's one growth area that a combined Alcatel/Lucent might look closely at in terms of its future growth. Home networking, the equipment that sits in the broadband user's home, has grown in importance for carriers and vendors alike in the past 12 to 18 months, though Alcatel has made an investment in one of the home gateway sector's leading lights, 2Wire Inc. . (See Alcatel Buys Into 2Wire, Cisco to Acquire Scientific-Atlanta, BB Forum: Gateway Goals for Carriers, and IP Video: In the House.)

— Ray Le Maistre, International News Editor, Light Reading

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digits,
User Rank: Light Beer
12/5/2012 | 4:00:21 AM
re: Alcatel/Lucent: The Domino Factor
There appear to be a number of options for some of these companies -- Cisco keeps growing through incremental acquisitions.

It could also increase the squeeze on Tier 2 vendors that could become increasingly exposed by megavendors.
chip_mate
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chip_mate,
User Rank: Light Beer
12/5/2012 | 4:00:20 AM
re: Alcatel/Lucent: The Domino Factor
How many times has a company acquired the assets of another struggling company and incorporated their name?
Never.

Name remains the Same.

Alcatel
chip_mate
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chip_mate,
User Rank: Light Beer
12/5/2012 | 4:00:20 AM
re: Alcatel/Lucent: The Domino Factor
They had a massive stroke in 1999, and have been in ICU since.

This company should have been put down long ago.
Amazing how it took the French to come in and do it in 2006.

Can't wait to see the French sweep out all the Lucent politicos who won't have a place at the ALA table.
I can't think of ONE major American city where Alcatel doesn't already have ENOUGH of their own people.
reoptic
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reoptic,
User Rank: Light Beer
12/5/2012 | 4:00:19 AM
re: Alcatel/Lucent: The Domino Factor
does not make them float.

Bottom line is that Cisco and Huawei enjoy strongest strategic positions in this market and everyone else stuck in the middle.

Looks like the airline industry. All the mergers can't make big guys competitive with JetBlue and Southwest.
jerph2000
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jerph2000,
User Rank: Light Beer
12/5/2012 | 4:00:15 AM
re: Alcatel/Lucent: The Domino Factor
For those who do not remember, talks between Alcatel and Lucent already occured in 2001.
http://www.lightreading.com/do...

It did not happen then and I would be surprised if it does happen today. The only reason why I would see Lucent agreeing to Alcatel's terms for a friendly merger is that they fear an hostile take-over on the stock-market from other companies that woudl have more dramatic consequences for the company and the employees.
trzwuip
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trzwuip,
User Rank: Light Beer
12/5/2012 | 4:00:15 AM
re: Alcatel/Lucent: The Domino Factor
Alcatel should not allow the boat anchor LU to join them and ruin what has otherwise been a good comeback by ALA. The only thing attractive to ALA has to be the Wireless Infrastructure Business where traditionally Alcatel has been a non-starter. Maybe VZ and T are talking Alcatel into taking this dog because they have so much invested...
chip_mate
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chip_mate,
User Rank: Light Beer
12/5/2012 | 4:00:13 AM
re: Alcatel/Lucent: The Domino Factor
jerph:
"It did not happen then and I would be surprised if it does happen today. The only reason why I would see Lucent agreeing to Alcatel's terms for a friendly merger is that they fear an hostile take-over on the stock-market from other companies that woudl have more dramatic consequences for the company and the employees."

Couple things have changed.
First the 2001-2 management is gone and secondly, the 2006 management does NOT believe they are in the drivers seat on this deal. They are more honest in their self realization (not smart, or saavy, just honest when they look at their crushing numbers and chances for an escape)
fgoldstein
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fgoldstein,
User Rank: Light Sabre
12/5/2012 | 4:00:09 AM
re: Alcatel/Lucent: The Domino Factor
chip> How many times has a company acquired the assets of another struggling company and incorporated their name?
Never.

Uh, AT&T?

Indeed, my former employer's name, Arthur D. Little, was purchased at a bankruptcy auction by a French company, Altran, who uses it for some of its activities.

Brand equity can be bought. On the other hand, Lucent's brand is rather new and already somewhat tarnished.
ATMRules
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ATMRules,
User Rank: Light Beer
12/5/2012 | 4:00:08 AM
re: Alcatel/Lucent: The Domino Factor
I smell the blood of a Frenchman.....If this deal does go thru, it will be interesting to see what the body count will be within 2 years of deal being completed. Anybody care to guess?

IP will never have the QOS OF ATM!!!!!!!!!!!!!!!!


jerph2000
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jerph2000,
User Rank: Light Beer
12/5/2012 | 4:00:07 AM
re: Alcatel/Lucent: The Domino Factor
A company's name can be a blueprint of industrial history in itself. Alcatel is a good example in addition to the AT&T/Bell example that everybody knows in the US. The history of the name Alcatel is less known but nonetheless capture some of the history of the 20th century European industry.

The name ALCATEL comes originally from a company in Alsace region in France: ALsacienne de Construction Atomique, de Telecommunications et d'ELetronique. Are you still there with me? Ok. The name ALCATEL survived multiple M&A and acquisition. Here is a sumamry:
- CGE (equivalent of GE and Siemens in France) acquired ALCATEL after WW2 in the 60's
- The telecom part of the CGE called CIT-ALCATEL merged with Thomson Telecommunications in the 80's. The new Telecommunication entity part of CGE (controlled by teh French government) was named ALCATEL
- CGE became ALCATEL-ALSTHOM in the 90's when the French Government sold its majority share and the current CEO (Tschuruck) took over.
- ALCATEL (Telecom) and ALSTHOM (trains, etc) were split and traded separately in 1998

Is a new chapter in the writing? It is interesting to know that Mr. Tchuruk worked a long time in the US in the oil industry prior to his coming to Alcatel. He completed the transformation of the company, started by the previous CEO, into a truly global company with English as the official language.

The only brand within Lucent that the merged company would care about is the label "Bell Labs". If the merger were to go through, which I don't think it will, I could see the new company taking the title ALCATEL (surviving once more a M&A) and renaming the whole technology group Bell Labs.

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