Alcatel-Lucent (ALU) has gone nowhere so far in 2012. The stock has been trading toward the bottom of its 52-week range. The stock is trading around $1.50, way down from the $5 mark that it was at this time last year. This is even worse considering that the stock was well over $10 if you go back four or five years. Times have been tough for Alcatel-Lucent.
Recently, the company has experienced some good news in its expansion into China and the fast growing market there. The moves beg the question of whether this can salvage the company, or at least make it a good move for investors once again.
I'm referring to the recent news that Alcatel won the right to work together with China Telecom to provide the country with faster broadband access across the country. This is not a new realization for the company. This contract merely serves to expand the involvement it already has in China Telecomm. The contract is part of the "Broadband China" initiative. This is an initiative in the country to provide as many people as possible with fast access to the internet. At the moment the project has already been expanded to include and cover quite a number of different people across the country, but it is nowhere near to reaching its target goal of 800 million Web users, including 200 million living in rural locations, by the year 2015.
In my opinion, this is a big move for the company. China is one of the biggest emerging markets, perhaps even the biggest, and it is therefore a great place to establish your presence as a tech company as soon as possible. This should help Alcatel assuage those investors that doubt anything may be going on with Alcatel.
However, we need to keep in mind that this "Broadband China" ideal is one that will be difficult to achieve. It has even been described as a "lofty goal" by some. This raises some doubts in my mind as to whether the goals of the Chinese government can in fact be achieved. If they can, great! Alcatel gets to benefit from the success and will look good going forward. It will be known as the company that transformed the entire network infrastructure of China and provided many people with internet access that they may not have otherwise had. However if the plans backfire Alcatel will not look as good as it may have done and the delay may even be attributed to it rather than to the initial high demands of the project. At the very least the company will be forgotten in its entirety, whereas if the plan is a successful one it will be remembered for many years to come. At the very least, stockholders should monitor the situation carefully to see what will happen.
Of course, Alcatel-Lucent will have plenty of competition from the growth of its competitors. CenturyLink's (NYSE:CTL) subsidiary Savvis has recently made its cloud computing solutions available to the Canadian market, a market that is underserved in this domain. This is a clear indicator that Savvis is one of the leaders in the technology of tomorrow, namely, cloud computing. With a company like this CenturyLink will go far and I foresee that this tech company will be one of tomorrow's leaders.
In a stark contract to the 5% that Alcatel is down in 2012, CenturyLink has gone up over 7% and though its 52 week high came a few months ago, it is nestling right up near the top end of that range. CenutryLink getting over $40 would be an accomplishment it's only hit once since a big drop off in 2008, and that should have investors excited (along with a great 7.40% dividend yield).
In fact, if Alcatel's growth does not excite, CenturyLink may be a better way to go. Competitors Frontier Communications (NYSE:FTR) and Windstream (NASDAQ:WIN) are both near the bottom of their 52 week range and have dropped in 2012 (Frontier by over 7%, Windstream by more than 15%).
Competitor Cisco (NASDAQ:CSCO) has also not fared well in 2012, having dropped over 12% in the year to date. It's by the far the biggest of the companies here (its market cap is well over $80 billion) and though it's down, it still reported a revenue growth of 7% in the last quarter and is looking to gain more market share than it already has. There's definitely some room for Cisco to be profitable, but it's a risk that some may not want to take.
Alcatel-Lucent has its work cut out for it. No one would doubt that. Its drop-off was ill-timed and the French company has surrendered a tremendous amount of market share. 2012 has been rocky, to say the least, and investors are clamoring for any reason to stick with the company, it seems. Broadband China gives some shines of hope, though the goal is certainly lofty if not unattainable. I have to say to stay away from Alcatel-Lucent for now until it proves itself with measurable growth. If you want to stay in the sector, I recommend considering CenturyLink while holding out for some more news from China.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.