It's Time To Buy Undervalued Alcatel-Lucent

Oct.29.13 | About: Nokia Corporation (NOK)

Alcatel-Lucent (NYSE: ALU) is set to release its 3rd quarter financial report this coming October 31. Analysts are saying that a new turnaround is forthcoming for Alcatel-Lucent. The stock has been down 74.59% for the past 10 years and value investors are now saying that Alcatel-Lucent is ripe for bargain hunting.

Alcatel-Lucent is trading at $3.21, giving this giant telecom company a meager market capitalization of only $7.34 billion. The stock market has punished Alcatel since it merged with Lucent Technologies in 2006. It is true that the new entity has suffered net losses every year since they merged but Alcatel-Lucent has consistently produced new technological innovations - making it still one of the top competitors of Cisco (NASDAQ:CSCO) Systems.

A Brighter Future Ahead

As of July 13, Alcatel-Lucent still managed to generate $18.92 billion in annual revenues. Despite the net operating losses, this company has enough market share to make a successful turnaround in the near future. Alcatel-Lucent's CEO, Michel Combes, says his company is making great progress towards getting out of the red. Higher revenues are now predicted because Alcatel-Lucent has sold 21% more network switches and routers compared to last year. More and more Fortune 1000 companies still entrust their vital database and networking requirements to Alcatel and reject Cisco.

The company is also considered a market leader in ultra-broadband services like the new 4G standard. Alcatel just landed a deal with Spain's Telefonica to build and supply the Spanish company with 8,000 4G LTE broadband base stations. China Mobile (NYSE:CHL) also awarded a major contract to Alcatel-Lucent. The French company will install 22,770 TD-LTE base stations in China by the end of 2013.

Even the U.S. military has recognized the technological prowess of the French telecom company. A unit of Alcatel-Lucent, LGS Innovations LLC has won a contract to supply the U.S. Army with telecommunications equipment and services. According to the U.S. Department of Defense, LGS Innovations LLC is one of the major suppliers for the $4.1 billion telecom deal.

Shift to the Cloud

Michel Combes also revealed that Alcatel-Lucent's legendary Bell Labs laboratory is focusing research on more efficient cloud-services. Alcatel is diversifying its business focus to providing cloud-centric services, Internet protocol networking, and advanced broadband access.

Alcatel-Lucent already holds the record for the fastest submarine cable data transmission. The Bell Labs scientists achieved 31 terabits per second (Tbps) data transmission speed over a distance of 7,200 km - three times higher than available commercial submarine cables available in the market today.

This data transmission speed breakthrough already makes Alcatel-Lucent a possible dominant leader of the Internet. Multinational corporations process huge amount of data for their business - they need the fastest Internet speed to facilitate it.

Alcatel-Lucent's revolutionary lightRadio Wi-Fi system, awarded the Best Infrastructure Technology Award during Mobile World Congress in 2012, is already gaining popularity. It is being adapted by more and more telecom operators. The main selling point of lightRadio is that allows telecom service provides a cheap way to offer premium high-speed Wi-Fi service to their customers without having to license expensive spectrum channels regulated by governments.

Debt Restructuring

Alcatel-Lucent is also doing well paring down its debt. Its profit margin is expected to improve now that the company has found more lenient financing. Goldman Sachs (NYSE:GS) and Credit Suisse Group (NYSE:CS) have agreed to provide a financing package of $2.1 billion to help Alcatel pay off its more expensive debts.

The French company also revealed they are selling off some non-performing assets to raise more than $1.5 billion more money. Alcatel-Lucent also plans to lay-off 10,000 of its global employees next year to save more money. These new developments will help increase the company's current 3% operating profit margin improve to around 9%.

Patent Licensing

Alcatel can also generate a lot of money if they license some of their most valuable patents to other companies. The company holds more than 27,000 patents that can provide billions of dollars in extra income should they decide to license some of them.

Alcatel-Lucent already won a $1.52 billion damage suit against Microsoft (NASDAQ:MSFT) for their patent violation on Windows Media Player. Alcatel's Bell Labs holds patents on MP3 and MPEG technologies which has now become industry formats. The Microsoft case is under appeal but industry observers already predict that the software company will settle out of court and avoid further litigation.

Patent litigation takes a long time; Alcatel's management should just play nice and license their patents for low but reasonable fees so it earns more money from more clients.


Alcatel-Lucent is an undervalued company with a great chance of making breakthrough improvement within the next two or three years. The stock price is very cheap and is therefore a perfect value investing opportunity for long-term big profit.

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.