Lucent Drags Down Alcatel

A profit warning issued late Monday by Lucent Technologies Inc. (NYSE: LU) hit Alcatel (NYSE: ALA; Paris: CGEP:PA)'s share price in Tuesday morning trading on the Paris bourse, even though the French giant announced trading in line with expectations. (See Alcatel Updates Q2 and Lucent Predicts Q3 Decline.)

The two companies announced their intention to merge in April this year. (See Alcatel, Lucent Seal Deal.)

Lucent said revenues for its fiscal third quarter (to June 30) are expected to be $2.04 billion, some $300 million short of the $2.34 billion expected by analysts.

That number is also shy of second quarter revenues, which were $2.14 billion, and the $2.34 billion recorded in fiscal 2005's third quarter.

Lucent also said earnings per share for the third quarter are expected to be 2 cents -- half the 4 cents analysts had anticipated.

The news, issued after the markets closed Monday evening, sent Lucent's share price down by 7 cents, about 3 percent, to $2.27 in after-hours trading. When the merger with Alcatel was first announced in early April, Lucent's share price stood at $3.05. That means it's down $0.78, or nearly 26 percent, since then.

But it had a more dramatic impact on Alcatel's stock today. Despite its in-line estimates for its own second quarter (also to June 30), Alcatel's share price fell €0.48, nearly 5 percent, to €9.30 on the Paris exchange. When its merger with Lucent was announced in early April, Alcatel's share price in Paris stood at €13.38, so it has fallen €4.08, just over 30 percent, since then.

Alcatel declined to comment on Lucent's announcement.

In its statement, Lucent said the drop in revenues, sequentially and compared with last year, is due "primarily to lower sales to North American mobility customers. To a lesser extent, the year-over-year decline was due to decreased revenues in China."

In the company's press release, Lucent CEO Pat Russo says a slowdown in spending due to carrier consolidation is partly to blame, but that "we believe consolidation will lead to opportunities as service providers look to us to help them integrate their large, complex networks."

And Lucent COO Frank D'Amelio reckons investments in CDMA and UMTS wireless infrastructure are set to increase, and that, "assuming that our EV-DO Rev A [new CDMA technology] and HSDPA [latest UMTS technology] rollouts remain on track, we expect that mobility deployments in North America will enable us to make the fourth quarter our highest quarterly revenue period for fiscal year 2006 by a significant margin."

One should never assume anything, though –- it only leads to trouble. That's what my granny told me.

The two companies also announced an update on the planned merger, saying that the deal should close before the end of calendar 2006, the timeframe reported by Light Reading late last month. (See Lucatel Updates Status and Lucatel: Full Steam Ahead.)

However, that update also contained something of a personnel bombshell, as Alcatel's COO, Mike Quigley, will no longer take up the same post at the new company once the merger is completed. (See Quigley Steps Down as Lucatel COO.)

— Ray Le Maistre, International News Editor, Light Reading

flam 12/5/2012 | 3:49:15 AM
re: Lucent Drags Down Alcatel
Simple. Tie it to another rock. The two together should float, right?

The next twelve months will not be pretty.

Or you hollow out the rock and plug the hole. Just the kind of thing that we have expertise in, yes?
optodoofus 12/5/2012 | 3:49:15 AM
re: Lucent Drags Down Alcatel Simple. Tie it to another rock. The two together should float, right?

The next twelve months will not be pretty.

Stevery 12/5/2012 | 3:49:14 AM
re: Lucent Drags Down Alcatel
So the merger is inked, the pullout terms are severe, and suddenly Lucent revenues go into a tailspin.

Quelle suprise!

scs_reader 12/5/2012 | 3:49:13 AM
re: Lucent Drags Down Alcatel Ms. Patricia F. Russo , 53
Founder, Chairman and Chief Exec. Officer $ 4.75M

Ms. Janet G. Davidson , 50
Pres, Chief Strategy Officer and Head of Corp. Strategy & Bus. Devel. $ 2.58M

Mr. Frank A. D'Amelio , 48
Chief Operating Officer and Exec. VP of Admin. $ 3.68M

Mr. James K. Brewington , 62
Pres of Developing Markets $ 2.55M $ 917.00K

Ms. Cynthia Christy-Langenfeld , 40
Pres of Network Solution Group $ 2.38M $ 0
materialgirl 12/5/2012 | 3:49:12 AM
re: Lucent Drags Down Alcatel It is clear why LU wanted to merge. They saw the end coming. But what does ALA get? Are they that stupid, or are they afraid of a shoe dropping of their own? My expectation remains that IMS never really materializes (isn't LU supposed to be the main supplier of this stuff?), the service providers start to wait for IMS, and the whole thing dissolves into a legacy nightmare. Meanwhile, they succeed in using Congress to kill off that troublesome Internet, all innovation stops, at least in the U.S., and startup's nightmare (a separate post) really materializes in a vengance.
flam 12/5/2012 | 3:49:12 AM
re: Lucent Drags Down Alcatel The old man's still there?! Hat's off to him; I was sure that the ladies would have had him out to pasture by now.

sjtech 12/5/2012 | 3:49:09 AM
re: Lucent Drags Down Alcatel
This acquisition reminds me of Daimler-Chrysler merger. It was May 1998 when the merger was announced. It was unheard off in the auto industry. This kind of aquisition is still unheard off in the cisco world. So what makes these crazy bozos think they can make the Lucent-Alcatel merger happen? This is no doubt an easy way out for Lucent which is not the first time. After failing miserably to compete in the cut throat telecom market, it had taken the easy way out by getting into the field of professional services. I would have liked to see the company being split up for the sake of the people and for the sake of competition in the industry.

Alcatel's DSL business is like Daimler's Benz, definitely not price-wise, but its the cream of the business. But lets not forget Alcatel's carrier ethernet business line which has taken huge strides in the past year. Lucent's wireless division is like the Chrysler Jeep. The rest is the legacy. Think about marrying a group of monkeys with a group of buffaloes. One is jumping around all the time and the other doesn't want to budge. You figure which is what.

Having said that, if it ever works we will see another set of executives who will set a new trend in business management. Since its obvious that its not likely to happen, here is my prediction.

Russo stays until Dec,2007
French CEO for next 2.5 years
Janet Davidson(if she sticks around) becomes CEO 2010 and splits the company into 3-4 units.
In this process, Alcatel loses momentum in carrier ethernet, Lucent on the wireless. The combined company will see >50 reorgs and the ew product lifecycle is >2 years.

I won't be surprised if the deal breaks by year end. But Alcatel needs to wake up before that.
Sign In