Alcatel-Lucent A Troubled Telecom Equipment Titan
Although we don’t have a position Alcatel-Lucent (ALU), we know people who do and because Alcatel-Lucent is so cheap, we have kept a loose tab on it over the last couple of years. We have also been interested in Alcatel-Lucent because the company was formed through the merger of French telecom equipment maker Alcatel with U.S. based telecom equipment maker Lucent Technologies and we had been following Lucent’s efforts to turn itself around in the wake of the Dot-Com and Telecom Bubble bursting in 2000. We are also aware that Alcatel-Lucent is not the only telecom equipment company facing the twin headwinds of a challenging macroeconomic environment and the soft demand for telecom equipment at the major carriers. We see that Ericsson (ERIC) and Nokia Siemens (NOK) are facing the same problems that ALU is facing.
RECENT HIGHLIGHTS AND LOWLIGHTS AT ALCATEL-LUCENT
Unfortunately for Alcatel and Ben Verwaayen, the stabilization that Alcatel-Lucent enjoyed from 2009-2011 has come to an end and the company has returned to generating operating losses. Alcatel-Lucent saw a 2.8% revenue decline in Q3 2012 versus Q3 2011 levels due to a 19% revenue decline (€195M) in its Wireless Networks business. ALU’s revenue was €3.6B in Q3 2012 versus $3.7B in the prior year period. At least this was better than the 7.2% year-over-year decline the company experienced in Q2 2012 versus Q2 2011 levels. Alcatel-Lucent includes the old Bell Laboratories and as such it is a former affiliate of AT&T (T) and Verizon (VZ). Verizon and AT&T also represent 12% and 11% respectively of ALU’s YTD 2012 revenues. Verizon had cut its YTD CapEx by $1.2B year-over-year and 90% of these cuts came at its profitable and steadily growing Verizon Wireless segment. AT&T cut its YTD CapEx by $1B, as a 6% increase in its Wireless capital spending to accommodate its 4G-LTE build out was more than offset by an 18% in its Wireline segment. Considering that the AT&T/Verizon duopoly represents nearly a quarter of ALU’s revenue and considering that the duopoly is cutting its capital investment spending even though it doth protest too much about how little capacity it has it’s no wonder why ALU’s revenue and profits have been soft this year.