Alcatel-Lucent Lucks Out

Amid massive layoffs, a grueling merger, and a lagging stock price, the folks at Alcatel-Lucent (NYSE: ALU  ) needed a morale booster. Yesterday, they got one: a $6 billion deal to deliver network equipment to Verizon (NYSE: VZ  ) . On the news, the stock price rose 3% to $11.92, giving investors fresh evidence that the company's fortunes are beginning to stabilize.

Alcatel-Lucent plans to leverage Qualcomm's (Nasdaq: QCOM  ) CDMA technology to boost the speed and capacity of Verizon's wireless platform. This should let Verizon deliver nifty new features like videophone service, and even pipe television shows to mobile devices and cell phones.

The deal comes amid much criticism of last year's merger of Alcatel and Lucent. Observers feared that the integration would be a major distraction, leaving insufficient managerial bandwidth to execute big contracts effectively. The Verizon deal should calm some of these worries.

The deal might also be a sign that Verizon realizes the importance of making significant infrastructure investments to grow and stay competitive. Its own effort could become a catalyst for even more investments at other carriers.

Verizon has already been spending several billion a year with Alcatel-Lucent, so this $6 billion contract may not be the last. It's also no secret that Verizon has outsized ambitions to build a technically dazzling network, hoping to capture millions of new customers.

Despite its fat new contract, Alcatel-Lucent still has challenges. The company's Q1 2005 earnings report was a disaster, including a stunning 12% plunge in revenues.

Reversing this slide will take at least a couple of quarters. Still, it's encouraging that the company's sales team can score big deals. If this momentum continues, Alcatel-Lucent's stock might actually start to boost investors' morale, too.

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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,590 out of 24,619 in CAPS. The Fool has a disclosure policy.


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