Rob Black's Technology Stock Report

Alcatel Lucent’s (ALU) 4th quarter ended 2006 on a low point in terms of revs, Gross Margins, Operating Margins, and EPS. Because of 4th quarter 2006's 16%Year/Year drop in revenues, 31.9% GM, and 0.5% OM, 2006 revenues declined 2% Year/Year and GM and OM averaged 36.9% and 5.6%. 2005 GM and OM were 39.6% and 7.6%.

Management indicated that 1st quarter 2007 revenues would decline at less than a typical seasonal rate from an already low 4th quarter 2006. This is a decline despite the addition of Nortel's (NT) UMTS revs in 1st quarter 2007. Because most of 2007 merger synergies will take place in 2nd half 2007, analysts do not see much COGS and opex improvement in 1st quarter 2007 and look for potential mixed results for GM and OM relative to 2006 averages given ALU's high degree of operating leverage. Management guided for ~5% Year/Year revenue growth in 2007. This is off a low 2006 base and includes the addition of Nortel's UMTS revs (revenues start in 2007, adds ~ 130b.p.). In other words, ALU's Year/Year organic rev guidance is actually ~3-4%, compared to peers like Ericsson (ERIC) and Nokia (NOK) which we see growing infrastructure revenues 7% and 7% respectively.

Dell (DELL) expects production in China for the domestic market to keep growing at about 30% in the short term, meaning the company might add another factory there in three to four years.

Sony (SNE) will cut back on future chip spending and may not produce advanced "cell'' microchips used in its PlayStation 3 game gear in-house as it seeks better returns on its investments. Improving profitability in its chip division is important for Sony.