Alcatel-Lucent: How To Profit From Its New Router

| About: Nokia Corporation (NOK)

Not many people usually have the opportunity to see history repeating itself and certainly not all investors have the opportunity to see history repeating itself in the business world. However, the handwriting on the wall for Internet core routers seems to be pointing to the fact that we may see history being reenacted with the entrance of Alcatel-Lucent (ALU) into the somewhat exclusive world of Internet core routers.

The $4 billion market share of Internet routers until today remains exclusive between Cisco Systems (NASDAQ:CSCO) and Juniper Networks (JNPR). However, the entrance of Alcatel into the market with the innovative 7950 XRS may have a very good chance of reenacting the history that was recorded when Alcatel entered the market for edge routers. You will remember that Alcatel entered the market in 2003 pretty much as a small fish that wanted to swim in the same pond as the sharks. However, Alcatel has been able to carve a niche that will see it controlling a substantial 24% of the market share at present.

If all of the features that accompany the new breed of routers should work as anticipated, you can be sure that Alcatel has an excellent chance of carving out an even bigger share of the market from its competitors. In simple terms, the use of the new routers will see web pages loading faster and stream video flawlessly without having to experience the frustration of a video stream that buffers every 5 seconds.

The announcement of a new innovative and powerful router by Alcatel this week is one of the factors that could see it starting a journey in the bullish trend. While the development of a router is no big deal after all, routers have been in existence for couple of decades, this one promises to change all prior perceptions about the concept of routers. Without boring you with the technical details, the 7950 XRS seems an unparalleled breakthrough in routers technology.

For one, it is designed to be used by Internet Service providers and telecommunication companies to transfer colossal amounts of data with breathtaking speed. The 7950 XRS is touted to have the capability of transferring 6.4 trillion bits of data every second. The statement coming from the Alcatel, as part of the information pack for the new core router, claims that the 7950 XRS has "five times the density of today's core routers." Given from another perspective, the new router will has the capacity to hold about seventy thousand high definition movies streaming concurrently.

In essence, there should be an unprecedented demand for the new product and whether you like the concept of a monopoly or not, Alcatel is set to have a monopoly in this market for the time being. One good example is the fact that the new core router is very energy efficient; in fact, it has the capacity to reduce the energy that it consumes by as much as 50% while also reducing the space that it takes by significantly with its stylish yet functional design.

However, there is no guarantee that the journey into establishing a strong foothold in the industry would prove easy for Alcatel. The reason for this is that it will need to show potential consumers a strong enough and compelling reason to make the switch from the traditional routers to its own routers. Yet, the strong point of Alcatel's 7950 XRS speaks for itself and thus, Alcatel would not need to defend its product before it can make a sale.

Interestingly, news has it that Verizon (NYSE:VZ) is the first to embrace the new technology among telecommunication companies in a statement in which it said that incorporate Alcatel's new 7950 XRS into its operations as an integral part of its wired and wireless networks. In addition, Verizon has plans to use the core router to extend its MPLS, which is a protocol that allows it to place priorities on the various streams of IP traffic across metropolitan network in major cities. According to Verizon, integrating the 7950 XRS into its operations will be smooth and easy because it already has some other products from Alcatel, which will be more compatible than a product from another manufacturer.

Nonetheless, you may be interested in knowing that a division on Siemens (SI) through its lighting division Osram has plans to build a new factory for the assembling of an LED chip in China. News has it that Osram has a large budget to be spent to get the facility on operation for the production and shipment of said chips by the end of 2013.

In another development, competitor Ericsson (NASDAQ:ERIC) has made a public statement to oppose the upcoming probe that has been planned by the EU commission about claims that Chinese vendors Huawei Technologies and ZTE are selling their products in Europe at an extremely low cost price. In a statement by Ulf Pehrsson who handles government and industry relations for Ericsson, "Ericsson is a strong supporter of free trade and we don't believe in this type of unilateral measure". He also went further to say that there is the probability that the EU stands the risk of of initiating "a negative spiral" if it continues to target individual Chinese firms.

Back to Alcatel, there is little doubt that will enter into another period of profitability if not for any other reason other than its cutting edge core Internet router. Thus, when all is said and done, Alcatel stands to remain the leading service provider that will take the cloud computing and even the Internet at large to another level. Stick with it and monitor the corporations signing on for its routers. All should be good here though, as long as the routers hold up.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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