Alcatel Lucent Remains at Neutral - Analyst Blog


On Nov 10, we maintained our Neutral recommendation on Alcatel Lucent SA ( ALU ). We are concerned about the company's wider loss in the second quarter of 2013, but the overall increase in revenues driven by growth in IP and LTE technology along with improved gross margins are positives for the company.

Moreover, the company is expected to benefit from its repositioning as a specialist in IP networking and Ulltra-Broadband services. Further, the company's 'Shift Plan' is also on target.

Why the Reiteration?

On Oct 31, Alcatel-Lucent reported net loss (including one-time items) from continuing operations of €0.09 (11 cents) per ADS in the third quarter of 2013, worse than the Zacks Consensus Estimate of a loss of 8 cents. In the prior-year quarter, Alcatel had reported earnings per ADS of 6 cents. The quarter's loss was primarily attributable to increased restructuring charges of €117 million ($155 million) and a financial charge of €218 million ($289 million).  

In the third quarter of 2013, Alcatel posted revenues of €3.7 billion ($4.9 billion), up 7.0% year over year and 3.1% sequentially. Revenues during the quarter were driven by strong growth in the IP revenues, Wireless and fixed networks, which was partially offset by the company's outdated technologies.

Following the release of the third-quarter results, the Zacks Consensus Estimate for fiscal 2013 increased 11.3% to loss of 59 cents per share. However, the Zacks Consensus Estimate for fiscal 2014 remained steady at loss of 4 cents per share.

After facing seven consecutive years of declines in cash flows,Michael Combes, Alcatel's current CEO has initiated The Shift Plan. Under this plan, the company plans to shift focus from the older technologies (second and third generation wireless equipment) to high potential newer ones like Internet routing. In addition, Combes also intends to trim costs worth $1.36 billion and sell off assets worth $1.36 billion (€1 billion).

Recently, he announced job cuts to lower the company's costs by approximately 15% by 2015. The Shift Plan is a strategy whereby the company intends to transform itself into a competent IP Networking and Ultra-Broadband Access company. 

Alcatel Lucent faces tough competition in each of its product lines. The company faces intense competition from the likes of Avaya, Cisco Systems Inc . ( CSCO ), Ericsson ( ERIC ), Fujitsu Ltd . ( FJTSY ), Huawei, ZTE and Nokia Siemens Networks (NSN). Furthermore, in the recent years, consolidation has reduced the number of networking equipment vendors.

However, the company remains a beneficiary to the significant growth in 3G wireless technologies and smartphones in the emerging markets. In addition, Alcatel-Lucent has been strategically forming alliance with a number of telecom companies to provide technology backup services for wireless broadband.

Currently, Alcatel Lucent carries a Zacks Rank #3 (Neutral).

ALCATEL ADS (ALU): Free Stock Analysis Report

CISCO SYSTEMS (CSCO): Free Stock Analysis Report

ERICSSON LM ADR (ERIC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: ALU , CSCO , ERIC

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