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Optical/IP

AlcaLu CEO Likes His Product Lineup

SANTA CLARA, Calif. -- Alcatel-Lucent (NYSE: ALU) has all the pieces in place for future growth; it's just that you can't see the results in the quarterly reports, CEO Ben Verwaayen told analysts at the company's annual Technology Symposium.

Speaking in a fireside-chat setup on Wednesday morning, Verwaayen insisted AlcaLu has a solid strategy in place that's dictating all product directions.

But of course, that progress doesn't politely show up once a quarter. Some big fiber-access wins in China, for example, haven't delivered a boost in revenues yet. (See Bad Start to 2012 for AlcaLu.)

What AlcaLu is missing, he contended, isn't the ability to progress but the "capability to do that in a less volatile way than we're doing."



"You could say in the past we were an assembly of products looking for a strategy," Verwaayen said. Now, AlcaLu has an overall strategy, accepted by carrier customers, that all products are adhering to, Verwaayen said. And to simplify the business, the products have been consolidated into three areas: access, core and services.

Service Provider Information Technology (SPIT) is certainly an underlying current, running underneath every product line. (See AlcaLu CEO Unveils New Vision.)

And cloud networking is a major initiative with nicely high margins -- in fact, AlcaLu's CloudBand platform officially launched Wednesday, with Texas-based carrier Transtelco announced as the first customer. (For more about AlcaLu's cloud ambitions, see AlcaLu Unveils Its Carrier Cloud Play.)

But in summarizing the state of the business -- something he was doing off the cuff, in response to a question -- Verwaayen stuck to familiar territory for most analysts, going down the major sectors of the network.

The access business, which looked like a commoditized wasteland two years ago, is hot, thanks to China's buildouts and the advent of higher-speed copper technologies. "China's plan for fiber access is unprecedented, and we are absolutely right in the middle of it," Verwaayen said. (See China Unicom Expands GPON With AlcaLu and AlcaLu Wins China Telecom Broadband Deal.)

In wireless, AlcaLu had some catching-up to do in radio, he said. But the rest of the wireless network, including backhaul, is moving to IP routing and focusing on video delivery. "In that next generation of technology, we have, I think, a better position than many of our competitors do," he said.

AlcaLu's best position might be in the convergence of the optical and IP networks. "We have an opportunity there to dominate," he said.

That's partly because AlcaLu is the only major vendor besides Huawei Technologies Co. Ltd. with a longstanding presence in both optical and IP. But there's also been a change in the market. The "customization frenzy," where every carrier wanted something slightly different in optical, is ending as optical and IP intertwine, he said.

One potential obstacle to AlcaLu's plans is the economy, of course -- particularly the precarious European economy. Verwaayen wouldn't offer any new speculation about what's going to happen there. "If the sky falls, the sky falls," he said.

— Craig Matsumoto, Managing Editor, Light Reading

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paolo.franzoi 12/5/2012 | 5:32:14 PM
re: AlcaLu CEO Likes His Product Lineup

Unless they announce profit growth why would investors raise stock price?


seven


 

DCITDave 12/5/2012 | 5:32:14 PM
re: AlcaLu CEO Likes His Product Lineup

Simon Leopold's note today mentioned that AlcaLu's stock price is confounding. It doesn't go up no matter what the company announces. Seems more "rethinking" may be in order and that's too bad because the Street doesn't seem to be giving Big Ben credit for all the good he's done so far.


 

macster 12/5/2012 | 5:32:12 PM
re: AlcaLu CEO Likes His Product Lineup

Indeed. In the near term, we can all understand, given the current climate. In the longer term, some are asking as to what comes next, what comes after mobile broadband, cloud, etc.


On the operator end, there's been noises/grumblings re. subsidies. See link. Vodafone also mentioned billions in subsidies.


http://online.wsj.com/article/SB10001424052748704559904576230143896332886.html


But you are spot on - it does not address revenue growth.

Soupafly 12/5/2012 | 5:32:11 PM
re: AlcaLu CEO Likes His Product Lineup

It comes down to people been very tired of hearing the same sounds time & again.


The stock price has been punished because of that credibility gap.


Its ironic that the same funds, analysts, inter alia cast that stuck with the "old" A-L team are now punishing the "new" one. The quote marks are because the sequence of failure at the company has been nothing short of scandalous, and the perpetual investor apathy, equally so.


@ Seven; I see your point, but disagree on profit growth. Obviously thats important but the stock has been hammered & marked down for succesive under-performance. If they can stabilise the ship and show that's happening, over any kind of consistent time-frame the price should rise - regardless of profitability or margin %. Why? To correct the over-compensatory "negative" posture some investors adopted. Summary: The stock price of a company is based on more that just profitability.


@ macster; What comes after mobile broadband, cloud?? Facepalm! Your either joking or have to be talking way beyond any timeframe anyone in the industry will credibly comment on. I would guess 5-10 years minimum.


I know of no-one who could or indeed would give you any kind of intelligent reasoned answer on what happens "after" those trends given that we are barely at the start of these revolutions, and their combined impact, has already changed the industry. 


But please, correct me...can you share with us what you think comes after MBB & Cloud?? I am ALL ears.

paolo.franzoi 12/5/2012 | 5:32:06 PM
re: AlcaLu CEO Likes His Product Lineup

Soup,


 


Losses will drive the stock price to 0.  The stock is not underperforming.  The company is.  What I tried to say in a short and sweet way is this:  New products are wonderful but to date they are not delivering profits.  Profits are what matter and the new products are only a means to the end.  There have been so many announcements without profits that nobody will care until they have profit.


 


seven

ecipo 12/5/2012 | 5:32:05 PM
re: AlcaLu CEO Likes His Product Lineup

Couldn't agree more!

TGIR 12/5/2012 | 5:32:02 PM
re: AlcaLu CEO Likes His Product Lineup

They did deliver profits last year.  Note that they actually have a PE ratio.

paolo.franzoi 12/5/2012 | 5:32:02 PM
re: AlcaLu CEO Likes His Product Lineup


Q1 (Mar '12)2011Net profit margin-8.27%


seven


 

macster 12/5/2012 | 5:32:01 PM
re: AlcaLu CEO Likes His Product Lineup

Can understand that Q1 is usually weaker than the other quarters, but the drop in revenue and GM is a cause for concern. Then you throw in things like the fact that they're still free cash dlow negative (albeit improving), it's hard to see how their share price can rise. Also don't agree with the sale of their call-centre business.


All this in a time of "revolution". Hence more are asking, what comes next?


Saying that, they do look cheap now.

paolo.franzoi 12/5/2012 | 5:31:55 PM
re: AlcaLu CEO Likes His Product Lineup

 


And from Schwab they have a PEG of less than 1.  That means people think there is risk in the stock.  If you look at a chart over the last 3 years they have lost money in about the same number of quarters as earned it.  Most of their money (about 75% last year) is made in Q4.


To get a better stock price - get earnings EVERY quarter - grow them EVERY year - and eliminate downside risk.  Pretty simple game.  Which ALU does not do.


seven


 

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