AlcaLu Could Restructure Even More

Alcatel-Lucent (NYSE: ALU) might not be done with restructuring, analyst Mike Genovese of MKM Partners speculated in a report issued Monday.

His projections have AlcaLu holding a cash cushion of €1 billion (US$1.33 billion) by the end of 2014, but that would be down from €2.2 billion ($2.94 billion) at the end of 2012. The "cushion" refers to cash minus short-term capital expenditures (€1.2 billion -- or $1.67 billion -- per year) and money held up for things like AlcaLu's pension obligations ("restricted" cash totaling an estimated €1 billion per year).

Here's the rub: Revenue growth is looking slow for the near future, including only 1 percent growth for AlcaLu in Europe next year, Genovese estimates. By his model, that means AlcaLu won't have the margins it needs to generate cash next year -- operating margins will be only 4.4 percent, and AlcaLu needs 5 percent.

"We believe the company is likely to consider all options including spin-outs, divestitures and joint ventures as potential ways to improve margins and unlock value," Genovese writes.

Why this matters
AlcaLu is coming off a difficult 2011, and CEO Ben Verwaayen is taking heat from shareholders over liquidity concerns. But if Genovese is right, the company still has work to do in 2012.

Some evidence of cost-cutting is already surfacing. Speculation in the Indian media has AlcaLu ready to outsource a major chunk of IT to the tune of $1 billion. IBM Corp. (NYSE: IBM), Infosys Technologies Ltd. (Nasdaq: INFY) and Tech Mahindra Ltd. are listed as probable bidders.

For more
The latest on AlcaLu's situation:

— Craig Matsumoto, West Coast Editor, Light Reading

gtchavan 12/5/2012 | 4:47:19 PM
re: AlcaLu Could Restructure Even More

Telco's are more concerned about taking care of their executives and union employees than taking care of their customers or suppliers.  Why would anyone would want to be a supplier to Telco's is beyond me. 

Polder 12/5/2012 | 4:47:18 PM
re: AlcaLu Could Restructure Even More Seriously? Fortunately my company is run as a non profit charity and we could care less about selling products or job security. Thanks for confirming I am just a pawn in a big charade...
Pete Baldwin 12/5/2012 | 4:47:18 PM
re: AlcaLu Could Restructure Even More

About AlcaLu:

- Simon Leopold of Morgan Keegan thinks AlcaLu *can* reach 5% operating margin -- he's got them modeled at 5.5% for 2012.

- The 1% growth that I mention out of Genovese's report ... that's for AlcaLu as a whole, not just for Europe. I'll get that corrected in the story.

MeerkatMac 12/5/2012 | 4:47:01 PM
re: AlcaLu Could Restructure Even More

Actually it is Telco's that have been continually raped by suppliers, sent on one wild goose chase after another pursuing the suppliers' dream of the next best service that never panned out, like ISDN, Frame Relay, ATM, and now Cloud Computing.  All the suppliers get rich and leave the Telco's holding the bag on worthless technological investments that there was never really a market for, just smoke and mirrors.  I'm not surprised if it all is finally catching up to suppliers in the form of less hook-line-and-sinker sales.  Perhaps suppliers should put their skin in the game and tie their profits to the Telco's profits on their equipment sales.

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