Alcatel-Lucent (ALU) has an incredible product in the LTE hardware it created. This has been written about and praised for years. Unfortunately the macro-economic conditions have not been good to the clientele the company depends on. This has left ALU exploring ways to raise revenue to address debt issues maturing in 2015. With this in mind, let's explore if ALU would be a good investment at this time.
CEO Ben Verwaayen has struggled for 5 years in his attempt to turn the company around. European phone companies have spent less because of problems in Europe, and the company has global rivals (especially in China) putting pressure on them. Cutting thousands of jobs and facing $2.6 billion in debt coming due in the next three years continues to work against the turn around. In search of revenue to bolster finances, it is exploring selling some secondary patents. Alcatel-Lucent has almost 30,000 patents and 15,000 applications pending. So the company is exploring licensing or limited sales of those secondary patents that aren't part of its core.
Interest has been generated from many different sources.
Asset Backed Financing
Looking for other ways besides patents to strengthen its balance sheet, ALU is very aware of the convertible debt coming due in 2015. The company is focused on addressing this issue with about 2.2 billion euros in debt repayments through to the end of 2015, with a major deadline on Jan. 1, 2015, according to analysts.
CFO Paul Tufano said this in a recent interview about the company's exploration:
"We are doing the research that it will provide the ability to take the liquidity issue off the table. Specifics are actively being worked right now. I can tell you we are extremely focused on it."
The temperament behind his words sounds like a top priority. This company needs to solve debt issues coming up while struggling with revenue generation. This is a tough position to be in.
Asset bank financing will create other options for the company. The submarine cable business, patents (which I have written about) and other assets have been discussed. With a second straight quarterly loss this will be a hard sell for the company. Between the numerous different contracts involved and negative covenants on its debts, it will be a complicated process if it can work at all. Even the sales of assets have been kicked around.
The best thing it has going for it
The best financial traction the company has right now is LTE in the United States with AT&T. AT&T is in the middle of a LTE build out that is scheduled to be completed next year. It budgeted $20 billion in spending just for 2012 and planned on having the LTE network cover 150 million POP's also by year's end.
As an investor, I would think about this and get a better feel for the company. When most companies are thinking about expanding and ALU must explore ways to address debt issues because of the present economic conditions. They are in a tough position right now. I believe the company is a good company but present economic conditions make it tough on it to grow and expand in an industry that takes a lot of capital. Although I think highly of the company's product, I just do not believe that it would be a good time to invest in the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.