On Nov 10, we maintained our Neutral recommendation on
Alcatel Lucent SA
). 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partially offset by the company's outdated technologies.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
Cisco Systems Inc
), 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
ALCATEL ADS (ALU): Free Stock Analysis Report
CISCO SYSTEMS (CSCO): Free Stock Analysis
ERICSSON LM ADR (ERIC): Free Stock Analysis
To read this article on Zacks.com click here.