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Alcatel Junked

Alcatel SA (NYSE: ALA; Paris: CGEP:PA) has joined a long list of telecom companies that have seen their debt hit junk status.

Yesterday Moody's Investors Service downgraded the company’s senior long-term debt to Ba1 -- one notch below investment grade. A similar change was made to its shorter-term debt as well. Many in the industry believe that Standard & Poor's will soon also downgrade the debt to below investment grade. Alcatel warned last week that its debt could be downgraded, confirming in a statement that both Moody’s and Standard & Poor’s had it on a negative watch list.

Alcatel insists that its credit line with lenders hasn’t been hurt and that it is in no immediate financial crisis. The company, which has over €5 billion (US$4.95 billion) of bond debt, also has a significant cash position: nearly €4 billion ($3.96 billion).

Moody's blamed the downgrade on declining overall market conditions. With service providers like WorldCom Inc. (Nasdaq: WCOM), Qwest Communications International Inc. (NYSE: Q), and Global Crossing Ventures either filing for bankruptcy, or teetering on the edge of it, the outlook in the telecom equipment space looks bleak (see Qwest Trashes Junk Rating and GlobalX: The Burst Bubble).

“Management has prepared the company well financially for the expected period of earnings pressure, by shoring up cash liquidity and reducing overall debt," said the agency. "However, Alcatel's ample liquidity today is likely to erode over time, if its market continues to decline rapidly."

Alcatel’s competitors Nortel Networks Corp. (NYSE/Toronto: NT) and Lucent Technologies Inc. (NYSE: LU) have already seen their bonds hit junk status. Still, the company says it is determined to get its investment grade status rating back. But experts believe this is highly unlikely.

“Debt never really recovers once it has gotten this low,” says one bond salesman.

In fact, Lucent’s bonds, which were downgraded to junk status in June of 2001, are still trading below investment grade. Nortel bonds, which were downgraded in April, are also still trading at junk status (see Moody's Junks Nortel Debt).

The reduction in bond rating isn’t exactly a crisis. Pressure from some institutional investors that can’t invest in junk-status bonds has helped pushed the stock down a bit. But judging from the stock price, investors haven’t panicked. The stock is currently trading down $0.27 (4.36%) to $5.92.

The company still has some time to get things back in order. Its first major bond payments aren’t due until September 2003. And Alcatel has already started working toward reducing its expenses. So far it has laid off roughly 30,000 employees, and last month the company warned it would likely cut another 10,000 jobs by the end of the year.

Over the next year, the company will have to come up with other ways to raise capital. They have several options, say experts. One option is to sell more shares, which would dilute current shareholders but would raise some cash. They could also do an equity-for-debt swap to help wipe their books clean.

At the end of the day, the only thing that will really get Alcatel and the rest of the telecom companies out of trouble is an overall recovery in the market. Declining revenues will only exacerbate problems, but greatly improved revenues could help the company pay down its debt and keep it from acquiring new debt.

Unfortunately, that prospect looks to be a long way off.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com
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skeptic 12/4/2012 | 10:07:40 PM
re: Alcatel Junked Moody's blamed the downgrade on the declining overall market conditions. With service providers like WorldCom Inc. (Nasdaq: WCOM - message board), Qwest Communications International Inc. (NYSE: Q - message board), and Global Crossing Ventures either filing for bankruptcy, or teetering on the edge of it, the outlook in the telecom equipment space looks bleak
-------------------
Given that alcatel has the least exposure of
anyone to a downturn in north america, I dont
think the service providers mentioned are the
issue.

I think the real issue is companies/customers
in europe in particular who are loaded down
with debt and potentially about to be in
serious trouble.


DCM 12/4/2012 | 10:07:36 PM
re: Alcatel Junked Not completely true
Alcatel has layed off lots of people worldwide. Due to labor laws in Europe and in particular France they have difficult in trimming the work force.

Some US Alcatel locations are taking a forced two week vacation. If you have vacation time on the books you must use it, if you do not have vacation time you will not be paid.

This does a few things, first it reduce a liability of vacation time off the books, so when they do lay you off they do not have to pay you. It also reduces the pay roll expenses.

This step may reduce the number of heads that will role on 7/22, I am sure they will let more go on 7/22
DCM 12/4/2012 | 10:07:36 PM
re: Alcatel Junked Alcatel has a number of problems. One is they have not learned how to build synergy from various companies they acquired. They acquired; Packet Engines, Xylan and Newbridge over the last few years and have not been able to utilize the products from these companies to offer a complete solution to the customers.

Another problem is Alcatel has not been successful in selling its Voice Data integration. The Aclcatel IP PBX is a really good PBX, the problem is no one in the US is willing to buy it since Alcatel has limited name recognition in the US. This is unfortunate since thy have or had lions share of the DSL market share, if people just looked at the label on their DSL modem they would know who Alcatel is.

The last issue is Alcatel is attempting to bring French management into the US market; it is not working at any of the acquired companies. These companies have lost key engineers, resulting in no new products or break through products coming form Alcatel.

Alcatel is torn between selling to enterprise and selling to carriers, they are not doing a good job of selling to either at this time.

This is why Alcatel is rate JUNKGǪGǪGǪGǪGǪGǪGǪGǪ
Skeptic_Al 12/4/2012 | 10:07:36 PM
re: Alcatel Junked Like the rest of the telecom biz, Alcatel has significant financial pressures and revenue problems. The rumor is that ALA will layoff several hundred dedicated folks on 7/22. Not a function of commitment, just business conditions.

So, if we look inwardly, how come ALA has no American seniro exec's, just minion's who report to Euro's???

Also, how come ALA lay's off Americans and the Euro's stay on board?? Just a thought provoking question.

All in all, the business is ugly, but let's make sure that the pain is shared equally across the pond - to date, it appears that the Yankees have to suck it up and the Euro's get a free ride.

Any thoughts???
Skeptic_Al 12/4/2012 | 10:07:35 PM
re: Alcatel Junked You are an optimist.

I wish you the best.
skeptic 12/4/2012 | 10:07:35 PM
re: Alcatel Junked Alcatel has a number of problems. One is they have not learned how to build synergy from various companies they acquired. They acquired; Packet Engines, Xylan and Newbridge over the last few years and have not been able to utilize the products from these companies to offer a complete solution to the customers.
--------------

It isn't a problem of building synergy so much
as picking the wrong companies and trusting
the wrong people.

And you have to have working synergy inside
the company before even considering buying
other companies and incorporating them.

Lichtverbindung 12/4/2012 | 10:07:35 PM
re: Alcatel Junked Skeptic,
-----------------------------------------------
So, if we look inwardly, how come ALA has no American seniro exec's, just minion's who report to Euro's???Also, how come ALA lay's off Americans and the Euro's stay on board?? Just a thought provoking question.
------------------------------------------------
Krish Prabhu was the only US-based executive with real power, when he became COO he appointed a pawn from Australia as the new Alcatel USA CEO so that he would still control the decisions made in Texas.
When Krish left, there was nobody behind, all the senior management from previous acquisitions or ANS/Rockwell had gone to startups. Now the Aussie is alone with the pre-retired DSC managers underneath trying to survive until the next round of cuts.

The Euros had a field day slaughtering Texas but it did not last long, they are now cutting in France and Belgium.



Belzebutt 12/4/2012 | 10:07:30 PM
re: Alcatel Junked How are the Alcatel router sales? Like the 7770 or the 7760? If anyone is familiar with them, are they even real routers or are they multiservice switches with routing strapped-on?
Light-bulb 12/4/2012 | 10:07:27 PM
re: Alcatel Junked Skeptic,

Yes, Alcatel is a French Owned and Managed company. Historically when a European company tries to pitch its "Style" in the US it falters. There are several good products its just the mis-match of people styles and cultures.
One of the best things Alcatel could do, is give North America its own reigns and controls.
For your question about why lay-off Americans first? Well thats a complex question in a way. But for starters We are feeling the pinch currently and they are not remembering that the US will also be the first to rebound. We effect all the other markets in the World, and they usually lag us 6-12 months(More in some cases-Less in others). So the problems with Carriers here will more than likely filter to European carriers as well. The other problem has to do with Country labor laws. Europe has much more protection for the working man and you have to go through certain provisions to fulfill a RIF. Here in America its very easy for corporations to cut.

Cheerio,
willywilson 12/4/2012 | 10:07:26 PM
re: Alcatel Junked Me thinks there's some shady accounting possibly going on at Cisco - they can't be that much better in this industry and in the present economic conditions.

-----------

Same here. Have thought this for several years, but can't find any evidence to support it. Yet, anyway.
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