Alcatel-Lucent (NYSE: ALU) has been in the red for the past few years now, but there may be reasons why its shareholders have not pulled the plug yet.
Alcatel-Lucent has been experiencing quite a number of problems lately. From the announcement of job cuts that resulted to protests from 1,500 French workers to its CEO Michel Combes saying that the company's future is uncertain, it is no wonder that most of its exasperated investors have already lost confidence in the Alcatel-Lucent stock. Alcatel-Lucent was once one of the frontrunners in global communications in Europe as they provide innovative products and solutions in both cloud networking, IP, and fixed and wireless ultra-broadband access. Today, the company might be in danger as CEO Combes confirmed that the company has lost over $1 billion every year since it has merged with the Lucent Technologies, a US firm, in 2006.
This is the 6th time that Alcatel-Lucent has laid off employees. With the company letting go of the staff six times in just seven years, it is hard to be optimistic. Combes shared some negative points about Alcatel-Lucent, but he did say that this time around, the restructuring plan will probably be the last. This is because the CEO is confident that the plan will now work even though it may take a while before it does so.
Alcatel-Lucent's Place vs. Its Competitors
Alcatel-Lucent is currently priced at $3.60 with a market cap of $8.18 billion, which is very low compared to its rival Ericsson (NASDAQ: ERIC) with $13.20 price and a market cap of $42.57 billion. While Alcatel-Lucent is slowly declining, ERIC has acquired a buy rating from Zacks Equity Research. Ericsson continues to spread its gains from the past trading sessions, which makes the stock quite attractive to its investors. However, it seems like Ericsson will soon meet a new rival in the form of Alcatel-Lucent and Nokia (NYSE: NOK) combination.
Speculations about Nokia and Alcatel-Lucent have been going around especially after Microsoft (NASDAQ: MSFT) purchased Nokia's handset business and Alcatel-Lucent is poised to let go 10,000 workers next year. Nokia will earn over $7 billion after the Microsoft deal is completed and industry sources have been talking about the possibility of Nokia taking over Alcatel-Lucent's wireless units.
Nokia might purchase Alcatel-Lucent's network equipment for $2.7 billion, as confirmed by the company that it is considering whether or not to combine their networks with the French company. However, the plan may not take place until the first quarter of next year because the Microsoft deal has to go through first in order for Nokia to gain the capital in purchasing Alcatel-Lucent's wireless units.
Purchasing Alcatel-Lucent Stock
While Nokia's plan to buy may still have to wait, many investors need an answer now whether they should buy Alcatel-Lucent stock or to just look somewhere else. The good news is that analysts are quite confident that with the probability of the Alcatel-Lucent and Nokia arrangement in 2014, this time may be the most reasonable time to buy the stock. The deal is greatly possible because Nokia will soon have the financial capability to make it happen and Alcatel-Lucent is slimming down. Given the fact that Nokia stock price headed north almost right after the Microsoft purchase (from below $4 to $5) and is still moving upwards to $7 at this time, the Alcatel-Lucent-Nokia combination could just be what the investors are waiting for.
Additionally, despite the negative goings-on in the Alcatel-Lucent business, the company is still busy making transactions. Recently, it has partnered with Telenet, which is a major cable broadband service provider in Belgium. Alcatel-Lucent will help Telenet in order for it to meet the demands of its customers when it comes to data and video. As a result, Alcatel-Lucent will supply Telenet with its IP product known as the 7950 Extensible Routing System or XRS.
Earlier, China Mobile chose lightRadio from Alcatel to power their 4G broadband network. This gives Alcatel-Lucent a huge opportunity to access the mobile market of the Chinese where in fact the French company's value comes mostly from the mobile market of the mentioned country.
Alcatel-Lucent, which is now an Ultra-Broadband Access and IP networking specialist thanks to the Shift Plan, is also working on expanding its solutions. Products will be showcased at the Broadband World Forum. With Alcatel-Lucent's efforts and innovations, the business transformation could work and will therefore help investors gain from this stock.
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.