Skip to main content

The Globe and Mail

Alcatel-Lucent improves signal-to-noise ratio

Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.

Restructuring plans are tough to call in the early stages. Unless executives are being wildly unrealistic, end-targets will look appealing and the path to achieving them, plausible. The question is whether a myriad of management moves needed to deliver the goals can be smoothly implemented. Investors in Alcatel-Lucent, the telecoms equipment group which has been in overhaul mode ever since being formed by a 2006 merger, know this better than anyone. Even so, they should be heartened by Tuesday's results, the first under chief executive Michel Combes, who took over in April.

For a start, these were better than expected. More importantly, the cushion came in all the right areas. Second quarter sales were 4 per cent higher, year-on-year, on a constant currency basis, at €3.6-billion ($4.9-billion). This was due to business in the U.S. (where big operators like AT&T are upping capital spend) and the IP routing equipment side. There was a small underlying operating profit, rather than the loss which the market had anticipated. The swing was not large – €50-million surplus rather than an expected €20-million deficit – but black ink is always welcome. Alcatel squeezed €120-million out of fixed costs compared with 2012's second quarter, making a full-year target of €250-million-€300-million look do-able. Cash burn, at €250-million, was no worse than expected. And there was the confidence boost provided by a tie-up with Qualcomm over small cell base stations, which sees the U.S. group take a modest stake in Alcatel.

Story continues below advertisement

In truth, Mr. Combes – no stranger to restructuring – always seemed to set his targets realistically. Also, the market, while competitive, does offer him some help in the U.S. and China. Last year's financial restructuring also buys time for disposals. With cash burn likely this year and next, valuing the equity is not easy. But if 2015 targets are delivered, the shares, having doubled in a year to €1.70, could be worth €2-plus. Sit tight.

Report an error
Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

Please note that our commenting partner Civil Comments is closing down. As such we will be implementing a new commenting partner in the coming weeks. As of December 20th, 2017 we will be shutting down commenting on all article pages across our site while we do the maintenance and updates. We understand that commenting is important to our audience and hope to have a technical solution in place January 2018.

Discussion loading… ✨