Alcatel-Lucent To 'Muddle Through the Morass of Its Mediocrity'

By Craig Galbraith Comments

**Editor's Note: Click here for our recap of how some of the biggest names in telecommunications fared in Q3 2012.**

It could take another year before Alcatel-Lucent, the Paris-based telecom equipment giant, to recover from what's been a tough few years.

When Alcatel and Lucent merged at the end of 2006, the combined company's stock price was sitting at $14; today it's just $1.36. Consolidation in the telecom industry and a really rough global economy are the biggest reasons for Al-Lu's problems, an analyst at Saibus Research points out in a column for Seeking Alpha. And if there's a light at the end of the tunnel, it's in the distance.

" ... we believe that Alcatel-Lucent will continue muddle through the morass of its mediocrity for at least 2-4 quarters before it begins to recover," the analyst wrote. "We believe that ALU's shares have been bid up because investors believe that the company is in less danger of a bankruptcy with its new senior secured credit facility. However we are not as optimistic about its near-term business operating financial performance as it is facing a soft telecom equipment market. ... When we take in account the mixed picture for telecom equipment demand in the U.S. marketplace and combine it with a weak macroeconomic environment in Alcatel-Lucent's home market of Europe as well as a potential recession in the U.S. due to the 'fiscal cliff,' we believe that there is still a significant level of risk and volatility in Alcatel Lucent's shares."

Keep in mind that Alcatel-Lucent's rivals have faced similar issues over the past six years. Both Nokia Siemens Networks and Ericsson have been "soft"; Ericsson's stock price, for example, is half of what it was at the end of 2006. And while Al-Lu's shares are a far cry from what they were several years ago, they're up 38 percent over the past month, thanks to new commitments with a pair of banks for more than $2 billion (U.S.) in new, senior secured credit facilities.

That being said, Saibus is more concerned about Alcatel-Lucent generating revenue in the immediate future than it is about the other companies' abilities to do so.

Are more asset sales in the company's future? Saibus believes it's possible, but notes that Alcatel-Lucent "has already harvested billions of euros from the sale of assets in 2009-2010."

Follow editor Craig Galbraith on Twitter @Craig_Galbraith.

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