Alcatel Lucent SA (ADR) Earnings: Will the Recovery Continue?

On Friday, Alcatel-Lucent (NYSE: ALU) will release its quarterly report, and investors are looking for continued improvement on the earnings front as the telecommunications and networking equipment manufacturer tries to recover from a long period losses. Yet even if Alcatel-Lucent likely won't become profitable this quarter, it still needs to demonstrate that its business acumen is sufficient to help it compete against Cisco Systems (CSCO 0.37%), Nokia (NOK -0.27%), and other major players in the industry.

Alcatel-Lucent has had to deal with tough conditions in its business for a long time, as major telecom buyers were stingy with their capital budgets and therefore didn't spend as much on equipment as they had in the past. Now, though, there've been signs that capital expenditures are picking up, and that bodes well for the company. But can it get more than its fair share of sales by besting its rivals in the space? 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 report.

Source: Alcatel-Lucent.

Stats on Alcatel-Lucent

Source: Yahoo! Finance.

Will Alcatel-Lucent earnings keep improving?
In recent months, analysts have gotten more optimistic about Alcatel-Lucent earnings, raising their full-year 2014 estimates by a nickel per share. The stock has largely treaded water, gaining 3% since early February after a strong 2013.

Alcatel-Lucent's fourth-quarter results showed just how far the company has come recently, as it posted its first quarterly profit in two years. Gross margins rose by nearly four percentage points, helping to produce operating earnings growth of 167% from the year-ago quarter. Strength in Alcatel-Lucent's access division produced a 15% sales bump for the segment. In addition, as part of CEO Michel Combes' Shift restructuring plan, Alcatel announced that it would sell an 85% stake in its telephone unit to China Huaxin, helping Alcatel in its long-term plan to cut debt and eliminate underperforming non-core assets.

Source: Alcatel-Lucent.

Yet Alcatel-Lucent still faces challenges. Last quarter, overall revenue fell by 4%, and operating margins lag behind those of Nokia and Cisco Systems. Core networking's sales declined by more than 7%. Moreover, with the Shift plan still needing further implementation, shareholders haven't been willing to give Alcatel-Lucent nearly as high a valuation as Cisco and Nokia based on price-to-sales ratios. That partially has to do with concerns about future growth, as Alcatel hasn't spent as much on research and development as Nokia and other peers have recently.

Alcatel-Lucent has opportunities to boost its revenue, though. With major telecom providers both in the U.S. and abroad having selected the company to help with LTE-network improvements and micro-cell base station installation, Alcatel-Lucent can ride the coattails of the boom in wireless-network spending domestically as well as the rapid ramping-up of network upgrades and improvements in emerging market nations like China.

In the Alcatel-Lucent earnings report, watch to see how successful the company is in taking advantage of opportunities in network and cloud infrastructure as well as software-defined networking. As the needs for bandwidth and data-flow increase, Alcatel-Lucent should be in a good position to take advantage of sluggishness from Cisco Systems to capture greater market share going forward.

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