Competitors seek growth as well
Juniper Networks, Inc. (NYSE:JNPR) is having trouble growing. For context, Juniper has about one-fifth or one-fourth the revenue Alcatel-Lucent does. It is harder to grow a larger company than a smaller one. By revenue, Alcatel-Lucent is the larger company. If Juniper is having trouble growing, then it is a signal that the industry circumstances do not point to easy growth. Some of the issues might be Juniper’s, but some are definitely the industry. Juniper’s last earnings showed the company beat on EPS but come in about flat for revenue. That is not the sign the market wanted considering that 2013 was supposed to be a better year for networking than 2012.
Cisco Systems, Inc. (NASDAQ:CSCO) does a ton of different things, which helps explain how it managed to beat on revenue. However, the most recent earnings were the first time that the company really beat on the top line. It delivers better profits regularly, but rarely does it manage to bring in more money than expected. Cisco has been run well for the most part so it did not need to undergo a period of introspection to find out how to change itself to do better. Even then, the company aims to cut costs while networking remains soft. It has paid off really well.
Conclusion
Alcatel-Lucent is a telecom company first and a networking company second, while Cisco is networking first and telecom second. Alcatel-Lucent is looking to switch this focus. The companies tend to overlap a lot. If Cisco is using the weakness to cut expenses to capture profits when things start improving, then there is no reason Alcatel-Lucent shouldn’t do the same.
Alcatel-Lucent cannot outspend Cisco or Juniper. Cisco has too much cash, and Juniper has a better balance sheet it can leverage if it becomes a war of dollars. Alcatel-Lucent needs to win its internal conflict and make more money than it spends. It needs to spend money in the right places to keep a technological edge, but it cannot go overboard on marketing and global expansion. This restructuring is step one. I am liking my call options more and more.
The article Alcatel-Lucent’s New Chief Lays Out Restructuring Plan originally appeared on Fool.com is written by Nihar Patel.
Nihar Patel has the following options: Long Jan 2014 $2.5 Calls on Alcatel-Lucent (ADR) and Long Jan 2015 $3 Calls on Alcatel-Lucent (ADR). The Motley Fool recommends Cisco Systems (NASDAQ:CSCO). Nihar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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