Light Reading
Vendor reveals plan to raise capital from an IPO of its submarine cables business as it reports Q2 financials, but investors are showing signs of nerves.

Alcatel-Lucent Preps Submarine IPO, Expects Core Growth

Ray Le Maistre
7/31/2014
50%
50%

Alcatel-Lucent is planning an IPO of its submarine networks unit in the first half of 2015 to raise capital for expansion of that particular line of business into the oil and gas sector, the vendor announced Thursday as it reported its second quarter financials.

CEO Michel Combes also talked about how he expects carrier spending to shift more towards the core of the network (IP and optical transport) in 2015, and is predicting a significant increase in revenues for that part of Alcatel-Lucent (NYSE: ALU)'s business.

With regards to the IPO, the vendor has not revealed details of how much it hopes to raise or what size of stake it hopes to float in Alcatel-Lucent Submarine Networks (ASN), which makes subsea communications cables and then deploys and manages them using its own fleet of cable-laying ships. But CEO Michel Combes was quick to state on today's earnings webcast that AlcaLu will retain a majority stake in the business, and that the planned IPO is not a step towards offloading the business. "This is a strategic decision, not an alternative plan. [ASN] is part of the group -- we want to grow it," stated the CEO, who added that ASN was picking up momentum following a grim 2013.

AlcaLu sees real potential for new business for ASN in the oil and gas sector, where ASN has already won a deal in Australia, though it hasn't stated what the size of the market opportunity might be. (See Alcatel-Lucent, Australia's Nextgen Team on Subsea Project.)

The move is part of the vendor's ongoing Shift Plan, which Combes says is going very well. Alcatel-Lucent's financial restructuring processes are now complete, costs have been cut, and the company is winning new business in some key focus areas, such as 4G, small cells, and SDN.

Second quarter revenues totaled €3.28 billion (US$4.39 billion), down about 4.7% from a year ago, but once multiple factors are taken into consideration, including exchange rate variations and the exclusion of the managed services business (where AlcaLu has been abandoning multiple contracts), the vendor noted that its comparable sales had grown by 5%.

Its adjusted operating income (after costs, one-time items and variables) improved notably to €136 million ($182 million) from €45 million ($60 million) and second quarter gross margin edged up to 32.6% from 31.2% a year ago. But once all items are accounted for, this is still a loss-making company, as AlcaLu recorded a net loss of €290 million ($389 million) for the second quarter.

For once, the vendor's highlights did not come from the IP division, strong though it still is. Despite recording impressive revenues of €561 million ($752 million) in the second quarter, that was down about 10% from a year ago. CEO Combes cautioned against any doomsday analysis, though, noting that the second quarter of 2013 was a particularly strong one for the IP group and that it was unwise for anyone to "over-read a single quarter."

Instead, it was wireless access that gave second quarter revenues a real boost, coming in at €1.3 billion ($1.74 billion), a year-on-year improvement of more than 22% thanks to 4G LTE-related growth in North America and China in particular. The vendor says it had 55 LTE contracts at the end of June, and 71 small cell customers.


Want to know more about the emerging SDN market? Check out our dedicated SDN content channel here on Light Reading.


What was really bold about today's statement, though, was the CEO's expectation that its core networking business, which includes IP networking, optical transport and platforms (cloud, SDN, NFV), would generate revenues of €7 billion ($9.4 billion) in 2015. This business achieved revenues of €2.72 billion ($3.65 billion) during the first half of 2014, so the vendor is clearly optimistic of a significant increase in sales in the coming 18 months if it is to reach that target.

Combes said he expects operators to start shifting their capex focus more towards backhaul and core networks following a sustained period of investment in access capabilities, and that he expects Alcatel-Lucent to be winning new business from target customer sectors such as cable and Web services. (See Cable Is Key to 'New' Alcatel-Lucent.)

He also noted that the vendor's SDN-focused business, Nuage Networks , is picking up new business – three new customer wins during the second quarter, taking the total to eight – and targeting new business with data center and financial services companies. In addition, AlcaLu is currently engaged in 55 proof-of-concept NFV trials, in addition to the virtual RAN engagement it has landed at Etihad Etisalat Co. (Mobily) . (See Eurobites: Mobily Shows Faith in NFV and Nuage Claims SDN Progress.)

But the CEO's bullish nature is not being reflected by investor activity: While the financial results were pretty much in line with what financial analysts had been expecting, Alcatel-Lucent's stock lost 8.9% of its value in early trading to dip to $3.50, possibly due to the unusual trend for the IP division's sales.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

(6)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
R Clark
50%
50%
R Clark,
User Rank: Blogger
8/2/2014 | 12:29:07 AM
Re: Oil & Gas
I remember there was a big rush by telecom submarine companies for oil and gas business back in 2006-7 when the oil prices were skyhigh. Then they collapsed. 

Not saying that will repeat, given the current energy markets, but commodity businesses can be very volatile.
DOShea
50%
50%
DOShea,
User Rank: Blogger
7/31/2014 | 9:33:28 PM
Oil & Gas
The comment on the oil and gas industry prospects is inteeresting, too. Have talked with two other vendors in the last three months or so that mentioned the same opoortunity beginning to show itself.
DOShea
50%
50%
DOShea,
User Rank: Blogger
7/31/2014 | 9:31:42 PM
Re: Submarine IPO
This is indeed interesting, though maybe not as interesting as those other options. In any case, maybe good timing, as all that major submarine cable operators recently have been/soon will be forking over money for upgrades to 100G. Also, many new submarine cable routes have been announced in the last two years = lots of business opportunities.
Mitch Wagner
50%
50%
Mitch Wagner,
User Rank: Lightning
7/31/2014 | 1:55:07 PM
Submarine IPO

When I read the headline, I thought they were going to either IPO a submarine, or hold the IPO underwater. But this is interesting too. 

rgrutza600
100%
0%
rgrutza600,
User Rank: Lightning
7/31/2014 | 11:50:37 AM
optical transport
I dont' know why they would stay in optical transport. It appears to be a huge money loser for them.  As indicated from this LightReading story.

Alcatel-Lucent's Optical Margins Don't Impress


 http://www.lightreading.com/optical/alcatel-lucents-optical-margins-dont-impress/d/d-id/700301
MarkC73
0%
100%
MarkC73,
User Rank: Light Sabre
7/31/2014 | 11:17:30 AM
Reactions to the quarterly report
Overall, I feel that Combes is doing what needs to be done as well as succeeding at doing it.  It's a tough environment in a company that is very diverse in culture.  Not everything is going perfectly but on a down day in the market this volatile stock is down 9%.  Though it may be exasperated by the market conditions, that's clearly a reaction.  The negativity I get, but what I don't get is even though the market's down on the quarterly report, the price target for this company hasn't moved from 4.90.

On the technical side the Nuage looks promising, the question will be do they have enough or can they build enough relationships to make a foot hold in the datacenter environment?
Educational Resources
sponsor supplied content
Educational Resources Archive
Flash Poll
From The Founder
It's clear to me that the communications industry is divided into two types of people, and only one is living in the real world.
LRTV Interviews
The New Wave of IP + Optical Integration

11|21|14   |   04:29   |   (7) comments


At the Alcatel-Lucent Technology Symposium, Heavy Reading senior analyst Sterling Perrin talks about how SDN has reshaped the discussion around packet and optical integration.
LRTV Huawei Video Resource Center
Huawei Highlights at BBWF 2014

11|20|14   |   3:40   |   (1) comment


Broadband World Forum is one of the world's largest telecoms, media and technology events with over 7,800 senior executives from across the globe converging on Amsterdam every year to identify the Next Big Thing. BBWF is an exciting place to meet the entire industry under one roof and identify the latest in network innovation, service optimization and customer ...
LRTV Huawei Video Resource Center
How Will BCMS Stimulate Margin for Broadband Operators?

11|19|14   |   6:52   |   (0) comments


In BBWF 2014, Liu Shuqing emphasizes the value of FMC 2.0 based full service experience by throwing light on the BCMS solution. The underlying principle of this innovative technique is to create network robustness and driving network from connection oriented to ACE – BAND oriented infrastructure, in which applications, cloud, and user experiences will be an asset ...
LRTV Huawei Video Resource Center
SingleFAN3.0: Better Connected Experience

11|19|14   |   3:06   |   (1) comment


At the BBWF 2014, David Hu, the VP of Huawei Access Network Product Line, talked about the future of access networks – SingleFAN3.0: faster broadband, wider coverage, and smarter connection.
LRTV Interviews
Basil Alwan Interview: The Road to Cloud

11|19|14   |   09:09   |   (0) comments


Alcatel-Lucent's head of IP and Transport talks about the migration towards a web-like networking environment, the impact of the cloud, SDN and NFV, and the yet-to-be-announced FP4 chip.
LRTV Documentaries
FairPoint Makes a Fair Point About Analytics

11|19|14   |   1:56   |   (1) comment


The US-based communication service provider gets to grips with advanced analytics, tackling data and breaking down the silos within its own business.
LRTV Documentaries
Analytics Lets C Spire Get to Know Subs

11|19|14   |   3:01   |   (2) comments


It's all about the data for US operator C Spire as it uses analytics to personalize its customer service down to individual subscribers.
LRTV Interviews
Nuage Branches Out With SDN: CEO Interview

11|17|14   |   9:32   |   (0) comments


Sunil Khandekar, CEO of Alcatel-Lucent's SDN-focused unit Nuage Networks, talks about the opportunities and challenges of breaking out of the data center into wide-area networks.
Light Reedy
Telecom Analytics Grows Up

11|14|14   |   1:15   |   (4) comments


The big data analytics debate has moved on from a year ago, with some experts suggesting it's no longer a technology challenge.
LRTV Huawei Video Resource Center
Huawei Compass

11|14|14   |   3:17   |   (1) comment


At OpenStack Summit 2014, Shuo Yang, Huawei Principal Cloud Infrastructure Architect introduced Huawei Compass, the software tool for solving customers' problems on the journey of OpenStack Cloud.
LRTV Huawei Video Resource Center
Huawei's Cloud Strategy in European Region

11|14|14   |   2:56   |   (1) comment


At OpenStack Summit 2014, Dr. Gotz, CTO of Huawei IT in European Region introduced Huawei's cloud strategy in European region.
LRTV Huawei Video Resource Center
Huawei's Contribution on OpenStack

11|14|14   |   5:58   |   (0) comments


At OpenStack Summit 2014, Dennis Gu, Huawei Chief Architect of Cloud Computing introduced the relationship between OpenStack and cloud computing, and Huawei's contribution on OpenStack.
Upcoming Live Events
December 2, 2014, New York City
December 3, 2014, New York City
December 8-10, 2014, Reykjavik, Iceland
February 12, 2015, Atlanta, GA
April 14, 2015, New York City, NY
May 6, 2015, McCormick Convention Center, Chicago, IL
May 13-14, 2015, The Westin Peachtree, Atlanta, GA
June 9-10, 2015, Chicago, IL
Infographics
Irish Telecom outlines the rise of VoIP technology, including its adoption within businesses and their perception of its quality.
Hot Topics
Bell Labs Chief Slams 'Toy' Networks
Robert Clark, 11/19/2014
$38.3M: Ain't That a Kik in the SMS
Sarah Reedy, Senior Editor, 11/20/2014
Do You Have a 2020 Vision?
Dennis Mendyk, Vice President of Research, Heavy Reading, 11/21/2014
Google, AT&T, BT Unite on Network Data Models
Carol Wilson, Editor-at-large, 11/20/2014
The New Wave of IP + Optical Integration
Ray Le Maistre, Editor-in-chief, 11/21/2014
Like Us on Facebook
Twitter Feed