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Goldman Sachs’ Tim Boddy yesterday dropped his rating on Alcatel-Lucent (NYSE:ALU) to Neutral from Buy, asserting that the company’s revenues are in free fall.

“We believe that Alcatel-Lucent’s order-book remains weak due to major internal disruptions during the integration process, and a sales recovery is unlikely before 3Q,” he wrote. As a result, he trimmed his EPS estimates on the company to 18 cents a share from 48 cents for this year, to 86 cents from $1.11 for next year, and to $1.02 from $1.24 for 2009.

Our buy on Alcatel-Lucent was predicated on bigger and faster cost-cutting momentum than investors expected, combined with a stable top-line outlook. While management has increased cost-cutting targets, we greatly under-estimated both the scale of revenue dis-synergies and the impact on sales from the internal confusion created by the merger. Worryingly, it appears that this confusion is taking longer to resolve that the company anticipated.

Alcatel-Lucent yesterday was down 46 cents at $11.52.

ALU 1-yr chart

alu chart

Source: Alcatel-Lucent: "Revenues In Free Fall"