Alcatel-Lucent (ALU) has been chosen to lay out 100 Megabit/second broadband network in Australia for over a period of eight years. The scope of work includes setting up a network, which can easily provide an unprotected but economical fiber optic connection to homes for residential services such as high-speed Internet access or IPTV services. Apart from engineering assistance, the company will also provide aggregation services to the National Broadband Network Company of Australia, which has awarded the contract.
The broadband network program envisages a total investment of AUS$1.5 billion over its lifetime with an upfront commitment of AUS$70 million and targets a coverage of over 90% of the Australian population.
Alcatel-Lucent is a worldwide leader in most areas of the wireline equipment industry, including broadband access and triple-play IPTV networks, to optical networking and is a growing player in the IP routing market. This group has a broad portfolio of products and services used by carriers in all facets of network operation.
The company is one of the world’s leading suppliers of a range of mobile communications products and services to wireless carriers around the world. It is broken into three divisions: The Mobile Radio division comprises mobile radio products for all major mobile technologies, including CDMA2000, GSM/EDGE, WCDMA/HSPA, TD-SCDMA, and WiMAX. Mobile Solutions consists of network products and software applications that enable mobile operators to deliver value-added mobile services, and has over 180 GSM customers worldwide. Wireless Transmission offers a point-to-point portfolio of microwave radio products meeting both European and American telecommunications requirements.
The company offers service providers end-to-end core, multimedia and IP Multimedia Subsystems (IMS) solutions that take advantage of the convergence of wireless, wireline, voice, data, and video on next-generation networks.
The combined Alcatel-Lucent continues to sort out its restructuring, which goes far beyond rationalizing the product line and consolidating its operations. While we believe management will do its best at consolidating the company and making the cuts necessary to survive, it may also have to contend with push-back from the French unions and the political fallout thereof. There is also the issue of combining two companies with different cultures, both at a company level and a social level. We believe that the company is being too optimistic in its assessment of the timing of the restructuring and that it may take a few quarters longer than anticipated for it to regain its foothold in the marketplace.
Telecommunications companies continue to be the largest group in terms of mergers and acquisitions, which has helped Alcatel’s penetration as companies try and consolidate with a single vendor. There has been a trend of consolidating with one or two providers from the telecom industry to cut costs and simplify the purchasing process, and this has caused several mergers in this industry; Alcatel-Lucent is the largest by far. The creation of a clear #2 behind Ericsson in the market should help boost the competitiveness of the industry and give Alcatel-Lucent solid positioning to improve its position over the long term.
We currently have an Underperform recommendation on Alcatel-Lucent.
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