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S&P Gets Negative on AlcaLu

Ray Le Maistre
7/31/2008

2:05 PM -- Following six straight quarters of losses, Alcatel-Lucent (NYSE: ALU) received the equivalent of a verbal warning from Standard & Poor’s today as the ratings agency announced it has "revised to negative from stable" its outlook on the troubled vendor. (See AlcaLu's Q2 Dragged Down by CDMA.)

While that means AlcaLu's credit ratings remain the same -- 'BB-/B' long- and short-term, for those who understand the system -- S&P's analysts are concerned "about the slow pace of improvement of Alcatel Lucent's margins and the group's large negative free cash flow." (See Signs of Stability at AlcaLu?)

In addition, the S&P crew is "also concerned that Alcatel Lucent's announced management changes could create further disruption for the company at a time when operating performance remains weak and carrier demand is softening." (See Russo, Tchuruk Out at Alcatel-Lucent.)

They added: "We may downgrade the company by one notch if operating performance (notably margins and cash flow generation) remains weak -- in particular if prospects for a mid- to high-single digit adjusted operating margin in 2009 recede -- and if Alcatel Lucent's liquidity position deteriorates unexpectedly."

AlcaLu's share price currently stands at €3.87, up slightly today but down 22 percent this year.

— Ray Le Maistre, International News Editor, Light Reading

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