Is There Any Hope for Alcatel-Lucent?

Network equipment builder and installer Alcatel-Lucent (NYSE: ALU  ) is a mess. When the company titles its earnings release something like, "Back to revenue growth and positive net profit," you know there's a lack of confidence at the headquarters. The truth is, there really wasn't much of a choice because the company just can't put a truly positive spin on this report.

The company reported $5.8 billion of sales, a 10.5% year-over-year jump. The $0.04 of adjusted net profit per share and depositary receipt looks like a step in the right direction, but was at least partly a result of one-time accounting tricks: Back out the benefits of adjustments to Alcatel's retirement plans, and you lose another penny. International rival Cisco Systems (Nasdaq: CSCO  ) wouldn't be caught dead skimming this close to the breakeven point, never mind dipping below it for years at a time. LM Ericsson (Nasdaq: ERIC  ) consistently reports positive earnings and cash flows. Nokia Siemens Networks, the networking joint venture between Nokia (NYSE: NOK  ) and Siemens (NYSE: SI  ) , runs on a thin margins stew, too -- but at least has the decency to stay slightly profitable.

It is actually hard to find a major networking company that sports the peculiar mix of weak margins and slow sales that Alcatel-Lucent does, and one halfway decent quarter does not erase years of trend-building. Every telecom provider on the face of the Earth seems to be installing next-generation networks these days, and Alcatel should be rolling in dough as a result. But it isn't.

The company is sitting on a precarious balance of cash and debt and keeps burning money quarter by quarter. With an Altman Z score that previously stood at 0.04 before these tepid earnings, Alcatel-Lucent continues to face the looming threat of bankruptcy if it can't figure out a way to change direction in the coming quarters and years. The stock may look cheap at first glance, but you get what you pay for. This looks like the next Nortel implosion waiting to happen.

"Operational excellence and reduced organizational complexity remain our key focus," CEO Ben Verwaayen said. That's more of a beautiful dream than a realistic description of the company at this point.

Do you see any reason at all to own this stock? Please enlighten me in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Nokia is a Motley Fool Inside Value pick. The Fool has written calls (bull call spread) on Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (14) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 05, 2010, at 5:13 PM, DanTheMan1984 wrote:

    These are pretty strong arguments nothing you write supports your claims Alcatel-Lucent is heading for bankrupcy? Really based on what? They have more cash and short term investments then they do long term debt, unlike Wal-Mart, yes thats right Wal-Mart...Alcatel-Lucent is turning the corner, trust me these prices are going to be cheap by the end of 2011 you will see this stock near the 10 dollar level. They made money this quarter whats the difference how it was done. They burnt through cash simply because there is a suppply chain problem and its not only affecting ALU, but Ericcson as well. If Ericcson and Cisco ae such great stocks why are thee stocks seem so dead then, they trade in a narrow range too. Cisco is a dead stock and really has no business on the dow, it lags.

  • Report this Comment On November 05, 2010, at 5:19 PM, DanTheMan1984 wrote:

    Oh and by the way Alcatel-Lucent just signed 2 major contracts for 5.7billion and just sold off a part of there business vaccum business for 200 million euros expected to be completed by the years end.

  • Report this Comment On November 05, 2010, at 5:30 PM, madashell56 wrote:

    I don't share the same glee that DantheMan shares. This stock has been an embarassment for the last ten years. As someone who once worked for the proud Bell System, I am disallusioned at what lays ahead for Alcatel-Lucent.

  • Report this Comment On November 05, 2010, at 5:39 PM, DanTheMan1984 wrote:

    madashell I can understand your fustration and I know all about it my dad is a retiree of Lucent, but the past is just that its the past...Wasn't Apple a dead stock for years and almost in bankrupcy at one time too? I believe so. Now I'm not saying that Alcatel-Lucent is going to turn into a Apple stock. VERY FEW do. But ALU would have went under last year at this time like Nortel did...but they didnt. Now that the company is doing better now this article gets written? This could have been written last year and been more believable. I think sometimes people knock a stock to try and scare others so they can get cheaper shares. BIDU only has a two rating here on the mootley fool yet the stock continues to rise and go up.....

  • Report this Comment On November 05, 2010, at 6:13 PM, hehe1111 wrote:

    This is an interesting boring article, as there are no solid data points from what I can see. I think it is pretty easy to suggest things with no data. I do agree with Dan...the past is the past, the future is the future - many companies have come back from much worse positions - others have sunk from better positions....I don't know many folks that have made much on any of the companies listed in the article in a long time - so I am glad you're not managing my portfolio

  • Report this Comment On November 05, 2010, at 6:37 PM, DanTheMan1984 wrote:

    hehe1111 totally agree. Let's look at GM in 2005 they were flying still pretty high who would have though 3 years later they would have gone bankrupt and needed bailout money...Thats another thing sure ALU has done bad the last decade or so, but let me ask you this have they ever gotten abilout money? No, they have worked and done everything on there own. Unlike AIG, Bank Of America, and Citi who would all be undewater today......who in 2005 were all much stronger then Lucent and Alcatel...(the two companies were no merged until december 2006)

  • Report this Comment On November 05, 2010, at 6:45 PM, reviewerx wrote:

    What's with the headline, and the inference that ALU is the next Nortel and heading for bankrupcy? I don't see anything to support that here. The Fool and Cramer are constantly dissing ALU. They came through an extremely painful merger, but are making possitive steps now.

  • Report this Comment On November 05, 2010, at 7:02 PM, bsdman wrote:

    alu is number 1 in mobile backhaul. Is winning business away from number 2 (tellabs). unbelievable growth in that business.

  • Report this Comment On November 05, 2010, at 8:24 PM, DanTheMan1984 wrote:

    good points bsdman, the author mentions none of the positives on ALU, and there are more of them then people think.

  • Report this Comment On November 05, 2010, at 8:26 PM, DanTheMan1984 wrote:

    reviewrerx - I agree with you completly....Cramer used to be a huge Lucent supporter epsecially in the late 90's now all of the sudden he hates the company since it has had some struggles which are well documentate, but thats all in the past now. Cramer and most of the people on the Fool are nothing but bandwagoner's who bash bad stocks when there down and take all the glory when a stock is doing well...I doubt this author even owns any shares in Alcatel-Lucent at all. So why is he writing about it? He seems to know very little about the company in general.

  • Report this Comment On November 06, 2010, at 3:32 PM, hehe1111 wrote:

    I agree with all, I believe that things are looking up right now for ALU - I am always pretty careful with my money - but I will definitely buy some ALU stock just because of the potential gains. I feel that they might actually turn things around significantly in the next year...

  • Report this Comment On November 07, 2010, at 7:55 PM, DanTheMan1984 wrote:

    hehe I agree I think Alcatel Lucent will have a very good 2011 and will make these prices look extremly cheap indeed.

  • Report this Comment On March 06, 2011, at 12:34 AM, DanTheMan1984 wrote:

    Looks like you were wrong about Alcatel-Lucent Anders as most of the fools are.Lets see stock is up 2.50 or so since you have written this since Novemeber and they had a great quarter in the 4th quarter and to close out 2010 and this year they expect to grow faster then there addressible market...In your face fool!!!

  • Report this Comment On November 13, 2011, at 4:01 AM, SomeoneNice wrote:

    Hmm! Well, we all can get nerves, maybe some get hot flashes. The problem is that no facts are driving stocks at this moment. There are big players who laugh from us small investors. They are making many on our emotions. The rules are: do your homework, make sure the numbers are right, and be patient. A stock trading is a game who is going to pop first. I am not the expert but I watch what is going on with the market. Alcatel-Lucent has the best technology and enough resources to survive. I do not know if that stock is going to be $10.00 or $6.00, like it was just 4 months ago. I know when big players will run out of scary rumors the stock will go back up. That is probably still a bargain compared to where these stocks are now.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1359886, ~/Articles/ArticleHandler.aspx, 8/27/2014 3:10:10 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement