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Analysts Lay Into AlcaLu

The day after its latest bleak financial statement, Alcatel-Lucent (NYSE: ALU) is the subject of a number of critical analyst notes, with one calling the merger of Alcatel and Lucent a "fiasco," and another likening the company to Britney Spears. (See AlcaLu Cuts 2007 Outlook by $1.25B.)

  • Dresdner Kleinwort analyst Per Lindberg, who was never a big fan of the merger, wrote in a note to investors that "there is little doubt that the merger between Alcatel and Lucent has turned into a veritable fiasco." (See Alcatel, Lucent Merge and Alcatel-Lucent Stays Tight-Lipped.)

    He believes that "if there is any silver lining" it is that AlcaLu may be forced to ramp up its headcount reduction program or sell off some assets.

    The vendor's restructuring plan currently includes job losses of 12,500, but it isn't providing any details about further cost-cutting measures until October 31, when it reports its third quarter earnings. (See Alcatel-Lucent Job Cull Hits 12,500.)

    But the company did tell Light Reading in an emailed response to questions that a recent realignment of its business provides "an opportunity for us to do more streamlining, more rationalization" that would impact the vendor's Carrier Business group and supply chain activities.

    Lindberg and his Dresdner colleagues believe AlcaLu should cut its headcount by 30,000 to reduce operating costs to an optimum level. He also suggests that the vendor might consider closing down its WCDMA wireless operations, even though Alcatel acquired Nortel's WCDMA assets just a year ago for $320 million, and believes the company might even put Bell Labs up for sale. (See Alcatel Snags Nortel 3G Unit.)

  • Jefferies & Co. Inc. analyst George Notter must surely have teenage children, as he writes in his analyst note about AlcaLu's current problems that he "can't help but draw parallels between Britney Spears and Alcatel-Lucent."

    He explains: "Spears, of course, has so much potential as a singer/entertainer, yet her recent troubles make her one of the most maligned Hollywood stars around."

    Adds Notter: "It's the same with Alcatel-Lucent in the communications equipment space. The company has lots of future potential but isn't generating any rave reviews from investors right now. We're even reminded of Spears's hit song 'Oops! ...I Did It Again.' The company has now negatively pre-announced three times as a combined entity."

    Unlike Lindberg, Notter believes AlcaLu can be a success. "We continue to like the concept of the Alcatel-Lucent merger given industry trends toward carrier consolidation, excess equipment vendor manufacturing capacity, etc. The business clearly has significant scale and areas of particular strength," notably in CDMA infrastructure, access systems, and Professional Services, "to name a few."

  • Nomura International analyst Richard Windsor says the situation is "worse than we had feared."

    AlcaLu's revenues revision was caused by changes in the capital expenditure plans of unidentified North American wireless operators, widely identified as CDMA operators Verizon Wireless and Sprint Corp. (NYSE: S). Windsor notes that the CDMA infrastructure market in North America "has been a big let down," and that any upside in AlcaLu's valuation is unlikely to happen "until the wireless hemorrhage is stemmed and CDMA spending resumes."

    AlcaLu wouldn't say whether it expects the wireless carriers in question to spend more in 2008 to make up for the reduced spending in the second half of 2007 but claims it hasn't lost any market share in the North American CDMA market as a result of the operators' new spending plans.

    Alcatel-Lucent's share price closed today on the Paris stock exchange at €6.50, down nearly 2 percent Friday. The company has seen its valuation fall by nearly 40 percent this year.

    — Ray Le Maistre, International News Editor, Light Reading

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    delphi 12/5/2012 | 3:02:41 PM
    re: Analysts Lay Into AlcaLu And then there were three: Cisco; Nokia-Siemens; Ericsson.

    Where are the AlcaLu defenders jumping to Pat's defence when Mike left?

    It has to be more than obvious that Serge's ego finally ran the ship onto the reef. Picked the wrong team in order to get the merger done.
    turing 12/5/2012 | 3:02:42 PM
    re: Analysts Lay Into AlcaLu The merger could also be compared to the invasion of Iraq: seemed like a good idea at the time to leaders who focus on abstractions but turned into a quagmire that just seems to get worse and worse with no way out.

    I think that's totally unfair.
    Iraq is doing a lot better than this merger.
    rainbowarrior 12/5/2012 | 3:02:42 PM
    re: Analysts Lay Into AlcaLu
    I think the comparison to Brittany Spears is rather charitable. The merger could also be compared to the invasion of Iraq: seemed like a good idea at the time to leaders who focus on abstractions but turned into a quagmire that just seems to get worse and worse with no way out.

    Now comes the "What were we thinking?" phase. Has a merger of two giagantic equals ever worked in the tech industry? Is it difficult enough when they are in the same country? What chance does an entrenched corporatocracy in NJ have to work with an enourmous French beauracracy?

    As is so often the case, the sum is worth a lot less than the individual parts.
    paolo.franzoi 12/5/2012 | 3:02:42 PM
    re: Analysts Lay Into AlcaLu
    What two giant equals?

    Lucent had become a joke. It had no leading products and a management team that was horrible. Why the French took in a corpse was beyond me. Lucent was like a chicken with its head cut off, body running around but dead already.

    I am stunned that Alcatel did not just wait till it started selling pieces for a lot less. Even sillier it should have fired the entire Lucent Management team.

    seven
    Stevery 12/5/2012 | 3:02:42 PM
    re: Analysts Lay Into AlcaLu rainbow: I think the comparison to Brittany Spears is rather charitable.

    Not to Brittany.

    seven: It had no leading products and a management team that was horrible. Why the French took in a corpse was beyond me.

    Add to that: Who was so bright to think that this was going to be a successful merger without a chainsaw job on the ATT culture?

    It's obvious that Pat is not a turnaround person; she simply does not have those skills.



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