Brendan Byrnes: Hey Fools, I'm Brendan Byrnes and I'm joined by Andrew Tonner, our tech and telecom analyst for Fool.com.
Andrew, let's talk Alcatel-Lucent. Big run-up recently; let's get the bear case.
Andrew Tonner: Yeah, a huge run-up. I think after we've seen this basically 60% pop for them, the question I'm wondering -- it might be a little bit of a strong one, but -- is it time to short Alcatel-Lucent?
The reason for this, or the catalyst for this pop, was basically the $2.1 billion in credit financing they secured from Goldman Sachs and Credit Suisse. Definitely a win, because there were even people talking about the company eventually facing insolvency at some point in 2013 or 2014.
But at the same time, it basically allows them now to roll out their debt for three years, which again buys them time to complete their announced $1.1 billion cost restructuring program. All of this sounds great, right? Investors should be enthusiastic, but at the end of the day it doesn't really change any of the underlying economics that are the real problem or the real drag on Alcatel's financial performance.
Again, they operate in an extremely competitive environment. There are only a certain number of these large, fixed contracts that are kind of the bread and butter of their business model, and there are so many people bidding for them.
The competition is so extreme, you have companies like Ericsson, Nokia and Siemens, who are also fighting for it. Now with the emergence of Asian lower cost competitors like ZTE and Huawei, it's a brutal industry for these companies.
It's a great story now, I guess. You have one of the most immediate overhangs alleviated for them, and now the company's not going to go bankrupt...
Brendan: That's good news.
Andrew: Yeah, which is good news, but at the same time doesn't justify a 60% pop when really nothing else has changed for them. I don't think so.
I'm not saying to short them -- that's a pretty strong statement -- but I would say I'm definitely skeptical.
Now, it seems like the kind of stock that maybe the traders have taken over, and fundamentals are starting to not matter as much, so I'm skeptical. I'm definitely staying on the sidelines while I look at this stock, but good for them. It's been a nice run, lately.
Brendan: Yeah. All right, definitely an interesting view. Thank you, Andrew. Make sure to head over to Fool.com for more analysis.
