Alcatel-Lucent: A Recovery Story Worth Buying Into

| About: Nokia Corporation (NOK)

"Today we are taking comprehensive action to position Alcatel-Lucent at the heart of the digital ecosystem . ."

That's Michel Combes, new CEO of Alcatel-Lucent (ALU), presenting a package of cost cuts, job reductions, and asset sales aimed at raising $2.7 billion by year-end 2015. (NYT) The stock reached a 16-month high in Paris after his July announcement.

Alcatel-Lucent lost almost $2 billion in 2012. Will their refocus on providing wireless broadband equipment to network operators worldwide bring the company back from the grave?

New life for an old company

Revival at Alcatel-Lucent began with hiring a new CEO from Vodafone (VODearly this year. Michel Combes' plan to save the company combines pieces to position the company to beat the global shift:

  1. lightRadio™ technology from Alcatel-Lucent revolutionizes delivery of internet worldwide
  2. Qualcomm (NASDAQ:QCOM) buys into Alcatel-Lucent to co-develop chips for it
  3. China Mobile (NYSE:CHL) move forward on a 4G network across China

If Alcatel-Lucent puts the pieces together right, it may indeed rise from the grave.

lightRadio technology is what the world needs

Alcatel-Lucent unveiled lightRadio™ technology in 2011 - shrinking the cellular tower to a palm-sized box - promising to alter the structure of the entire cellular network. This new architecture breaks the base station into component elements, distributing them through antenna and a cloud-like network - unifying the transmission clutter into a single multi-frequency, multi-standard Wide-band Active Array Antenna.

Mounted on poles, sides of buildings, or anywhere power and broadband connection come together, this new technology offers to halve . .

*total cost of ownership to networks, and

*mobile industry C02 emissions globally

. . while bringing mobile broadband into new regions of the world.

Applying for more than 200 patents to protect the intellectual property, the company is set to bring lightRadio into full production in 2012 with "a rolling timetable of six-monthly upgrades into 2014." Of the many mobile network operators that signed up, one name sticks out prominently: China Mobile.

Alacatel-Lucent expects wireless data traffic to grow worldwide by a multiple of 30 through 2015 with an 18-fold increase in smartphone devices. Machine-to-machine communications, with IP-connected sensors in just about everything, will cause an explosion in data demands.

President Alcatel-Lucent wireless activities, Wim Sweldens, concludes: (WSJ)

"Operators will have to look at dramatic ways to cut costs, you cannot increase investment 30-fold."

Qualcomm to help develop chips for lightRadio

In July Alcatel-Lucent and Qualcomm announced a plan to co-develop small cell base stations, thus combining:

*Alcatel-Lucent's proven expertise and innovation in small cells with

*Qualcomm' industry-leading FSM9900 family of Small Cell chipsets

Working together they expect to accelerate the adoption of these micro cells. (release) As Dr. Paul E. Jacobs, chairman and CEO of Qualcomm says:

"Working together with industry leaders like Alcatel-Lucent, we can accelerate the dense deployment of small cells globally, driving another significant leap in advanced wireless broadband technology and services."

lightRadio lets Alcatel-Lucent compete in China's 4G conversion

In March China Mobile, the state-owned wireless company with more than 740 million customers, committed to buying $7 billion of mobile network equipment in 2013, setting off a race to supply the new gear from:

*Sweden's Ericsson (NASDAQ:ERIC)

*Finland's Nokia (NYSE:NOK) Siemen's, and

*China's Huawei Technologies Co. and ZTE Corp. (OTCPK:ZTCOF)

France's Alcatel-Lucent, too.

China Mobile helped form an international group to build the TD-LTE mobile technology standard they're now adopting country-wide. (WSJ)This group included Vodafone - from which company Alcatel-Lucent hired Combes in February.

A turnaround worth buying into?

The stock has soared, more than doubling since its 23-year low last October. "The earnings are good," says Eric Beaudet with Natixis Securities in Paris: ". . . better than the consensus." The combined company had essentially been bleeding cash since their 2006 merger, racking up $9 billion worth of losses 2006-2008.

Combes' plan to sell $1.3 billion of assets and cut costs by the same amount, detailed on June 19, boosted share price by over 7 percent that day. They say they're ready to outspend market leader Ericsson in research and development, taking aim at new market leader Huawei, who posted an 11 percent gain in first-half sales. (Bloomberg)

This may be a turnaround worth buying into.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.