Alcatel Plummets. Is This Ship Sinking?

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Another report is out from Alcatel Lucent  (NYSE: ALU  ) and the storyline is familiar: the company is losing money and burning cash. No one expected the company to turn around in a quarter, but its continuing losses are becoming worrisome. 

Last quarter, the big number was adjusted operating losses of 125 million euros, or $161 million. Of course, the big problem with Alcatel isn't just adjusted earnings information anymore. The company is beginning to face serious liquidity problems if it can't stem its cash losses. Last quarter the company burned over $600 million in free cash flow and left itself at a net cash position of about $300 million. However, after the current quarter, that net cash position turned firmly negative after another period of cash burn. Alcatel now has net cash of about negative $110 million. 

All these losses are particularly striking because Nokia's (NYSE: NOK  ) recent quarter's biggest surprise was the sudden strength of its Nokia Siemens unit. While telecom equipment spending has been far lower at major telecoms like Verizon  (NYSE: VZ  ) , the company's capital expenditure spending in the back half of the year was stronger than the first. Given the signs of optimism, it's even more disappointing to see Alcatel continuing to struggle. 

Alcatel's prepared remarks in its earnings release heavily featured the company's transition and efforts to save costs as well as its remaining cash. Not only that, but CEO Ben Verwaayen said the company is targeting being "net cash positive" at the end of 2012. The tone of those remarks shows just what an "all or nothing" proposition Alcatel has become. Of course, the problem with being an all-or-nothing proposition is there are few quarters left where the company can survive this kind of "disappointing quarter." 

We'll have more coverage on Alcatel Lucent's recent quarter on today. 

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Eric Bleeker has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. 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. The Motley Fool has a disclosure policy.

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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 02, 2012, at 2:10 PM, t3inc wrote:

    Sometimes, mergers just don't work out. Culture gaps, market misjudgments, geopolitics--who knows, really? These days, "costs" and "cash" are code words for people. It appears that, in the near future, Alcatel managers are going to be separating out the remaining Lucent folks. It really comes as no surprise to the surviving Lucent workers.

  • Report this Comment On November 02, 2012, at 6:35 PM, r00kie888 wrote:

    They need to cut much much deeper to trim the fat off this bloated pig! Absolutely ridiculous to make 4+ billion dollars in a quarter and not make a single cent!

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