Alcatel Lucent (ALU): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Alcatel-Lucent is a leading networking and communications technology company. We are maintaining our Neutral recommendation with a $4.25 target price. Recently, the company received a number of new contracts driven by growth in IP and LTE technology. In addition, the company's Shift Plan is on target and achieving the desired results. The company is focused on divesting its non-performing assets. However, that entails additional risks for the company. Furthermore, cash remains a challenge and the highly competitive nature of the telecom industry concerns us. While the worst seems to be over for Alcatel, it still needs to revive and generate double-digit revenue growth and strong cash flow. This looks achievable with a strong pipeline of new products, strategic deals and a shift toward IP routing and cloud.

Overview:

Based in Paris, Alcatel-Lucent (ALU) is a leading global provider of IP and Cloud networking, ultra broadband fixed and mobile access. The company started its restructuring strategy The Shift Plan', an initiative taken by the CEO Michel Combes in June 2013.

The Shift Plan' is a strategy intended to reposition and establish itself as the specialist of Internet Protocol (IP) and Cloud networking, ultra broadband fixed and mobile access. The three-year paln has been scheduled to be completed by 2015. However, the company has already seen improvement in its cash and balance sheet position in the past few quarters. Moreover, its share prices have surged by more than 200% in the last year, reflecting the success of this strategy.

Before the company ended 2013, Alcatel Lucent entered an agreement for the sale of LGS for approximately $200 million. This apart, following the earnings release, Alcatel Lucent mentioned that it has received a binding offer from a Chinese technology investment company, China Huaxin for the 85% acquisition of Alcatel-Lucent Enterprise.

The company operates its business in three primary segments:Core Networking, Access and Others

Core Networking Segment (42% of revenues for fiscal 2013 came from this segment) Alcatel-Lucent is a world-wide leader in in the IP (Internet Protocol) market. The three main businesses of the Networks Group Are IP Routing, IP Transport and IP Platforms. Together they provide end-to-end communications networks and individual network elements. The company's IP product portfolio of routers and switches, support IP-based applications and services, which in turn monetize network investment of service providers and lessen agitation of customer. The company provides state-of-the-art network infrastructure including trending services like emerging Software Defined Networking (SDN). IP Transport division of the segment specializes in providing infrastructures and services for enabling reliable and efficient optical transmission while cutting down thee costs significantly. The company's IP Platform business has been designed to bring together the service providers and customers to enhance the use experience while maximising the benefits from the data-driven technology.

Access Segment (50.4%) Under this segment the company provides services under four business divisions namely, Wireless, Fixed Access, Licensing and Managed Services. The company is a leading service provider, for both wireless communications infrastructure and fixed broadband access, addressing the rising demand for broadband services across the globe. Apart from these services, the segment also holds licenses for various wireless, optical, and data networking technologies. The segment also provides cost-effective managed services solutions for diverse industries to enhance their networks.

Other Segment (5.9%) The segment has two divisions, Enterprise and Government businesses.Through its Enterprise business, alcatel lucent supplies end to end products, solutions and services for small, medium, large and extra-large companies to improve conversations and collaboration across employees, customers and partners. The company's government business, LGS Innovations LLC catered to providing networking solutions to the U.S. Federal Government. In the reported quarter, the company also closed the previously announced divesture of its LGS Innovations business to Madison Dearborn Partners for approximately $200 million in cash.


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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 , Stocks

Referenced Stocks: ALU , IP

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As of 7/23/2014, 11:09 AM