August 5, 2012
Senior Technology Analyst Eric Bleeker and Chief Technology Officer Jeremy Phillips discuss the future prospects for Alcatel-Lucent, a company that's attracting investor interest because of its fast-fading share price and potential for big investing gains if the company can turn it around.
After Alcatel's press release began with cost reductions, investors could have guessed that there would be trouble ahead. While Alcatel brags about leadership in many next-generation segments, price wars and intense competition, led by companies such as China's Huawei, is killing its ability to stem its cash burn. This isn't the only problem for Alcatel, as its traditional areas of strength are on the decline. Wireless, its largest network segment, is seeing the biggest year-over-year declines. The company claims leadership in next-gen network technologies such as IP solutions, but if that's being overridden by drops in traditional areas of sales, that's a net loss Alcatel can't easily recoup. Its "adjusted" operating loss was only 31 million euros, but more important losses continued to widen.
Take, for example, cash burn: At the end of this quarter, net cash was only 236 million euros, while the quarter before it was 753 million euros. This rapid deterioration is an ominous sign for Alcatel’s turnaround attempts. Even near $1, where the company is effectively priced to go under, Eric advises avoiding Alcatel in favor of better investments and recommends staying out of telecom equipment plays in general.
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