Alcatel-Lucent Earnings: An Early Look

Earnings season is in full swing, with many companies having already given their latest numbers to investors. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news.

Let's turn to Alcatel-Lucent (NYSE: ALU). The telecom equipment provider recently got a lifeline of future funding, but now it has to figure out how best to use its new opportunity. Let's take an early look at what's been happening with Alcatel-Lucent over the past quarter and what we're likely to see in its quarterly report on Thursday.

Stats on Alcatel-Lucent

Source: Yahoo! Finance.

Will Alcatel-Lucent finally connect this quarter?
Analysts have gutted their views on Alcatel-Lucent's prospects over the past three months, sending earnings-per-share estimates nearly to zero over the past three months and swinging from initial hopes for a profit in full-year 2013 to projecting a substantial loss. Yet the stock has soared on investor optimism about its immediate ability to survive the tough industry environment, having exploded more than 65% higher since early November.

That shareholder reaction shows just how close to the edge Alcatel has been lately. With near-term operational liquidity starting to become a concern, a loan of more than $2 billion from Goldman Sachs and Credit Suisse was the catalyst to a big rebound in the stock, as it indicated that Alcatel would have a chance to implement its restructuring plans.

Now, though, it's time for Alcatel to do some heavy lifting. Massive layoffs will help cut costs, but the company also needs to keep its research and development focus if it wants to differentiate itself from its competitors. Alcatel's deal with patent management company RPX (RPXC) to help it monetize its portfolio of 29,000 patents hasn't panned out the way it had hoped, which could lead Alcatel eventually to cut back on that relationship. Instead, Alcatel plans to do more work directly to squeeze some extra profit from its intellectual property.

Looking forward, Alcatel needs to demonstrate it can compete among a wide array of rivals in its industry. A $1 billion contract with India's Reliance Communications will help, even though the partnership between Nokia (NOK -0.27%) and Siemens (SIEGY -0.53%) has made India one of its primary focus areas for growth despite plans to reduce its global workforce. Nokia Siemens Networks certainly hopes to capitalize on any perception that Alcatel is struggling financially, even as Nokia Siemens tries to shore up its own finances.

Investors should look between the lines of Alcatel's report to see if there's any truth to speculation that Cisco Systems (CSCO -0.52%) or a private equity firm could come in to buy out the company. Cisco is unlikely to do it given its push toward a simpler organizational structure, but if private equity is interested, it could help provide a longer-term solution to Alcatel's woes.

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