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ALU + NSN: A Reality Check

Ray Le Maistre
9/26/2013

Investors are getting excited, it seems, about the prospect of a merger between Alcatel-Lucent and Nokia Solutions and Networks (NSN) following media reports that the idea was being discussed at NSN's headquarters.

While the reports also stressed that no formal talks had taken place, Alcatel-Lucent (NYSE: ALU)'s share price jumped more than 5 percent Thursday morning to €2.67.

Yet the people who should be most excited about this speculation are the folks at Cisco Systems Inc., Ericsson AB, Huawei Technologies Co. Ltd., and the other major vendors that compete with both AlcaLu and NSN.

There's no doubt that a merger of Alcatel-Lucent and NSN could look good on paper. Combining NSN's professional services, mobile broadband infrastructure portfolio, and customer experience management (CEM) developments with AlcaLu's IP, optical, cloud/SDN (think Nuage Networks and Cloudband), fixed broadband, and professional services could make for a powerful combination -- AlcaLu's lightRadio radio access work could even play a role in a combined portfolio for 4G LTE and beyond. And both have significant customer bases and global operations that would make for an industry powerhouse, while the combination of the two companies could drive a lot of operational efficiencies.

Sounds good doesn't it? Maybe it's not surprising that investors are getting moist.

But hold on a minute -- it's time for a reality check.

Both companies nearly killed themselves with their previous mergers. The combination of Alcatel and Lucent turned somewhat toxic internally and the resulting company has largely been kept alive by the IP division. Without Basil Alwan's crew, one could argue that AlcaLu might not even be around in 2013 to be dragged into the M&A gossip I'm writing about here. (See TiMetra at Heart of AlcaLu's Shift.)

AlcaLu is still in the early stages of dragging itself out of the financial mire and has quite a way to go before it can be regarded as fiscally secure. (See Alcatel-Lucent Unveils Shift Plan and Alcatel-Lucent Builds Future Around IP.)

NSN has been on the same sort of journey. The combination of the network infrastructure and services businesses of Nokia and Siemens created an unmanageable behemoth that nearly crushed itself. A turnaround plan that was instigated in late 2011 came just in time, though at a massive cost in terms of money and jobs. In fact, the recovery has been so strong that Nokia has taken full ownership of NSN and is selling its mobile device crown jewels. (See Nokia Sells Devices Business to Microsoft , NSN Becomes NSN and Has NSN Turned a Corner?.)

Both companies, then, have just managed to survive their previous mega-mergers and have only recently come off corporate life-support machines (AlcaLu is still being monitored, actually). And now there's talk of kick-starting a similar process? Do me a favor…

I can understand the excitement around the idea of "Alcanok." (Got a better name? Please share on the message boards.) But it's a move that could cause customer confusion and uncertainty, result in years of operational mire, create a cultural clash that could be ugly to watch and effectively hand even greater market power to the likes of Cisco, Ericsson, and Huawei.

My advice? Don't do it.

— Ray Le Maistre, Editor-in-Chief, Light Reading

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pzernik
pzernik
10/1/2013 | 11:33:38 AM
Re: AlcaNuSeNce?
What about Nokia Solutions and alu Networks (NSN).   Nokia needs to find a way to keep being called NSN and since ALU is a three letter word....technically it doesn't need to be a letter in the acronym. right?
Simon@
[email protected]
9/29/2013 | 6:04:22 AM
Re: Really?
I doublt the possibility  . it is unimagenable
jhodgesk1s
jhodgesk1s
9/28/2013 | 4:05:26 PM
Re: Really?
Given the overlap in product portfolio, doesn't appear very synergistic. Plus, the impact of NFV and SPIT is changing the merger/acquisition model. Instead, I wonder how far out we are from a large IT vendor and Tier 1 telecom vendor merger/acquistion?
MarkC73
MarkC73
9/28/2013 | 5:09:30 AM
Re: ALU share price
Though I really haven't kept up what NSN has done outside of what they're selling off.  I agree, I can't see the merger being a good thing.  I definitely agree that without Basil and crew ALU would have been worse shape or no shape.  Their IP gear is pretty good.  However, as you said, they are not out of the woods, they need to keep growing their Service Routers, Wireless market share and make headway into Datacenter markets.  All the while handling debt, cashflow, and reorganization.
macster
macster
9/28/2013 | 1:05:36 AM
Re: ALU share price
I dunno..... while I agree that now is probably not the time for another merger, there is room for a bit more consolidation.

What I do know is..... those who listened and bought ALU at €0.70 or €0.80 last year would have seen their investment go up by 300%. (Lol, moral of the story? Looks like Macster does know what he's talking about.)

Wow, midnight already, time for my beauty sleep. Have a good weekend.

 

 
Hoop
Hoop
9/27/2013 | 11:47:47 AM
Re: AlcaNuSeNce?
How about... ALuNoTiC (Alcatel Lucent Nokia Telcommunication Integrators Co) or maybe DAFFTEC (Deutsch American French Finish Telecommunications Equipment Co)???   I know... <groan>!   The last one does represent one of the major difficulties in a possible merger though, doesn't it?
Ray@LR
[email protected]
9/27/2013 | 3:55:21 AM
Re: ALU share price
Alcatel-Lucent is in better shape than it was a year ago for sure but it's not out of the woods.

What I'm saying here is that the last thing it needs  is to be involved in another major industry merger - I think that would be disastrous. I hope the bankers that will be urging this to happen (think of the commission...) miss out this time.

Of course, the conpany cpould find itself stuck between a rock and a hard place - damned if it does, damned if it doesn't. I hope that's not the case.
macster
macster
9/27/2013 | 3:27:22 AM
ALU share price
Hmmm.....

I wonder what the ALU (CAC) share price is now? What was it last year? When it went below a dollar in NY, which the editor here said was of no significance? LOL! And comments about their demise?

ALU's not quite dead, aren't they?

 

 
MordyK
MordyK
9/26/2013 | 6:45:53 PM
Re: Really?
In a perfect world I would agree with you as it spurs innovation, but from a shareholder/management perspective you are competing with companies that have deeper resources
Benoit Mercier
Benoit Mercier
9/26/2013 | 6:16:54 PM
Re: Really?
The market needs to grow, not shrink. We need more competition, which spurs innovation and market growth. Creating a Frankenstein NokAlu is not in the best interest of the companies, their shareholders, their employees, their customers or the market in general.
Page 1 / 2   >   >>
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