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Alcatel-Lucent's Optical Margins Don't Impress

Craig Matsumoto
News Analysis
Craig Matsumoto
12/17/2012
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One side effect of Alcatel-Lucent (NYSE: ALU) getting that $2.1 billion credit facility Friday is that the world got to study the financials of AlcaLu's separate segments.

The company doesn't typically report the individual margins for each segment. But the numbers are available in presentations AlcaLu prepared for its new creditors, Goldman Sachs & Co. and Credit Suisse . (See Alcatel-Lucent Secures €1.6B Lifeline.)

You can find the PDF presentations on AlcaLu's website. And they contain a couple of interesting details.

Specifically: "We didn't realize that Alcatel-Lucent's [optical] margins were this bad," writes analyst George Notter of Jefferies & Company Inc. , in a note issued Monday morning.

It's no shock that the optical business's margins are lower than those of, say, the IP business.

But AlcaLu's gross margins of 17 percent for terrestrial optics and 29 percent for submarine optics are what caught Notter's eye. Infinera Corp. (Nasdaq: INFN) and Ciena Corp. (NYSE: CIEN) made gross margins of 39 percent and 42.7 percent, respectively, in their most recent earnings reports, and neither one was profitable. "We’re therefore assuming that Alcatel-Lucent’s Optical division is operating at deeply negative profit margins," Notter writes.

Here's how the margins tally up:

Table 1:

Business
Segment
Gross Margins
IP (i.e., routers) 49%
Optical (Terrestrial) 17%
Optical (Submarine) 29%
Wireline (i.e., PON/DSL) 22%
Wireless 35%
Network Applications 41%
Services 22%
Source: Alcatel-Lucent




— Craig Matsumoto, Managing Editor, Light Reading

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