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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    rjmcmahon 12/5/2012 | 3:02:40 PM
    re: Analysts Lay Into AlcaLu "A few CEOs are so inept and so incompetent, you wonder if they are trying to sabotage their companies," Jim Cramer said on his "Mad Money" TV show Friday.

    In the glory days of no government oversight folks like Jay Gould, acting as CEO, would short the companies before he bankrupted them. Where's the libertarians complaining these SEC rules limiting the freedom of CEOs who no longer can maximize their takings on the downside? Somebody needs to fight for their freedoms, so Kramer (and plebeians) be damned ;-)
    bollocks187 12/5/2012 | 3:02:39 PM
    re: Analysts Lay Into AlcaLu Actually LEDzepp your way out of touch with reality...

    Nortel is also a disaster - sad to be a Canadian -Four more financial executives are facing charges for cooking the books !

    Cowboy has it right: "The sad part is that a lot of good people will lose their jobs in this thing. Pat will march into the sunset with her parachute and good Alcatel employees will get nada."

    As we all are in the same industry it is really frustrating to see some of the top executives - fart around and screw up good companies - they need to kicked out on there fat asses - hey they are not financial hurting so I would not feel sorry for any of them !

    gocowboys 12/5/2012 | 3:02:39 PM
    re: Analysts Lay Into AlcaLu There were lots of people that saw the holes below the water line in this merger a long time ago. I remember some analyst skepticism at the outset. Ultimately, this is not about the analysts, rather, it is about a misguided merger and an incompetent management team. Personally, when I hear the term "merger of equals", I know that it is time to run away screaming. When I hear "merger of equals" and Lucent in the same sentence, it is time to wonder whether the inmates are running the asylum.

    Oh yes, if you think this company is just slightly broken...load up with the stock. :-) I think that the Hindenberg went down slightly slower than this stock will.

    The sad part is that a lot of good people will lose their jobs in this thing. Pat will march into the sunset with her parachute and good Alcatel employees will get nada. Wonder whether this is the legacy that Serge had in mind?
    LEDzeppelin 12/5/2012 | 3:02:38 PM
    re: Analysts Lay Into AlcaLu bollocks187, it seems that you equate "reality" with "reality", which is so sad. It does not take a genuis to know Lucent was/is hurting. As for Nortel, the executives being charged are from way back and not the current executives so you are out of touch with time. As well, there are far more Nortel employees working outside of Canada so your comment about so sad being a Canadian makes no sense. If you believe in the analysts view, I have some swamp land and a bridge to sell you. Call me.
    bollocks187 12/5/2012 | 3:02:35 PM
    re: Analysts Lay Into AlcaLu LEad,

    Nortel was once one the leading telecom vendor and it was Canadian - it still is and I'm sure proud of it - it may have bought a few company's that does not make it US. Lucent is US at heart but know fused with the Frenchies.

    As for the Analysis comment - well I have a read a lot of the reports over a couple of decades so I would not take them to seriously.

    Back to the point - history has shown that Nortel, Lucent have managed to royaly screw themselves up - with management directions.....mmm

    One of Nortel's misteps was to kill and sell of its access division. Lucent was to continue with the Stinger product line and AnyMedia ;-)

    Both can recover but it will be a long road and some leadership changes.

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