Alcatel-Lucent Plots Its Comeback

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Here we go again.

A little more than a month after reporting its first quarterly loss in more than a year (and it was a biggie -- $322 million in the red), Alcatel-Lucent (NYSE: ALU  ) has announced yet another plan to get back in black.

The centerpiece: Getting rid of several of the people who got Alcatel in this fine mess in the first place. According to the company, Alcatel will cut its executive team in half, introducing a "streamlined" executive committee of just six members. But the six execs getting the boot won't be alone. Alcatel also intends to lay off 5,000 employees as it restructures itself along the lines of four main global businesses -- all part of a plan to shave about $1.6 billion off of its operating budget by the end of next year.

Life is hard
Success is far from certain, and even management sounds unsure of itself. When reporting its loss back in July, CEO Ben Verwaayen declined to affirm his previous promise to exceed last year's 3.9% operating profit margin, or even to earn any profit at all this year.

But Alcatel isn't alone in its difficulties. As Europe cuts back on telecom infrastructure spending, competitors like Ericsson (Nasdaq: ERIC  ) and Nokia (NYSE: NOK  ) have been hurt. Nokia, in particular, has announced layoffs hitting a quarter of its employees.

So what will it take to get Alcatel back on track? Cutting costs is a good start, but with Europe in a slump, what Alcatel really needs is for U.S. telecoms to start buying more of its stuff. With the introduction of an LTE iPhone, you might think that's likely. But in fact, Verizon (NYSE: VZ  ) just announced that it will wind up spending less money on infrastructure this year than it did in 2011. (Infrastructure spending at the telco was already down 17% year over year in the first six months of 2012). Meanwhile, The Wall Street Journal reported earlier this week that AT&T (NYSE: T  ) may soon become "the largest spectrum owner among major U.S. wireless companies ... by a large margin." This, too, seems to argue against the chances of a major buildout in capacity any time soon.

Foolish takeaway
It's not surprising that Alcatel has lost 93% of its market cap since merging with Lucent six years ago. There's little hope that Alcatel -- free cash flow negative for all six of those years -- will improve quickly.

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Fool contributor Rich Smith owns shares of Nokia, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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