Alcatel-Lucent: A Turnaround You Shouldn’t Miss

Strong management and key partnerships with Qualcomm and Intel make Alcatel-Lucent a strong turnaround candidate.

Apr 10, 2014 at 10:30AM

Betting on a turnaround can prove to be a very lucrative investment if you pick the right company. It isn't as easy as it sounds, as comebacks can often end in disasters, thus it's important for investors to pick the right company. One company on a turnaround trail that's worth considering is Alcatel-Lucent (NYSE:ALU). In short, partnerships with Qualcomm (NASDAQ:QCOM) and Intel (NASDAQ:INTC) are why Alcatel's turnaround will be successful and why investors should consider this company for their portfolios.

A brilliant CEO
Although Alcatel-Lucent is down over 12% in 2014, the company is in the right hands and has strong upside potential. Michel Combes, Alcatel's CEO, seems to be a smart leader; he has taken the right steps to transform the equipment maker into a company that can remain profitable over the long term. In February, Alcatel delivered its first quarterly profit in two years, indicating that Combes' bold Shift Plan is starting to take effect.

As part of his Shift Plan, Combes promised sales of non-profitable assets worth €1 billion, and a €1 billion reduction in overhead by 2015. He is sticking to his words and will oversee his second disposal by selling Alcatel's 85% stake of its enterprise unit to China Huaxin.

Getting rid of non-profitable assets is a must for any company, but it is even more important for Alcatel-Lucent. With a debt/equity ratio of 168, it is evident that Alcatel is highly leveraged. As a result, in some quarters, it fails to generate enough cash to keep up with interest expenses. Thus, Combes' Shift Plan is a masterstroke, as it will not only help the company enhance its margin, but also improve its overall financial outlook. The company can use the cash to pay off debts and sustain long-term profitability.

Combes knows that cost-cutting and divestments are not enough to reverse Alcatel's fortunes. The company has taken multiple steps in the correct direction and may complete its fairy tale turnaround sooner than many expect.


In addition, Alcatel has also extended its software-defined networking, or SDN, capabilities, which will benefit the company in coming years. Per AGC Research, service providers spending on SDN systems will reach $15.6 billion in 2018, up from $626 million in 2013.

Tie-up with Qualcomm
Alcatel's partnership with Qualcomm to develop multi-mode cells is set to bear fruit in coming years. The multi-mode cells that combine Alcatel's lightRadio radio access network with Qualcomm's small cell chips are expected to hit the market by mid-2014. 

The two companies expect to launch small cells with improved wireless network reception in environments such as urban areas, shopping malls, and other enterprise venues. Mike Schabel, VP of Alcatel-Lucent's small cell department, declared that all of Alcatel's small cells will have integrated Wi-Fi going forward.

As of January 2014, Alcatel had 65 contracted, revenue-generating clients in 42 countries. Increasing sales of smartphones and tablets have resulted in increased demand for data usage, and the deployment of small cell base stations will not only shrink overheads for Alcatel, but also improve the network speed.


Alcatel-Lucent has a database of over 600,000 qualified sites available for small cell rollout across the U.S. and western Europe, and according to the Small Cell Forum, this figure can easily go up to 11.5 million by 2018.

Bottom line
Alcatel is moving in the right direction under a strong management team. The company is doing the right things by selling off non-core assets and inking key partnerships with leading players to grow sales. So, Alcatel looks like a turnaround play that shouldn't be missed.

Invest in megatrends: 3 stocks poised to be multi-baggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Amit Patel has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Qualcomm. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information