Alcatel Lucent SA (ADR) (ALU): You’re Being Sold the Same Old Story, I Wouldn’t Buy It

Page 2 of 2

On Tuesday, I compared Alcatel Lucent SA (ADR) (NYSE:ALU) to Cisco Systems, Inc. (NASDAQ:CSCO) and Ericsson (ADR) (NASDAQ:ERIC) in an attempt to show Alcatel’s potential value. If Alcatel would focus on the growing $11 billion in annual revenue, it would be growing faster than either Cisco or Ericsson. Just look at how it would compare if it would eliminate all of its garbage.

Alcatel-Lucent Cisco Ericcson
Revenue $11 billion $47.88 billion $34.35 billion
Revenue Growth 8% 5% 2%
Price/Sales 0.40 2.77 1.14
Operating Margin 6% 22% 8%

If Alcatel would cut its unprofitable and declining segments, it would no longer be the black sheep of the telecom equipment industry, and significant upside would still exist. It would be a fast-growing company and would still be cheap compared to sales. In fact, because of its presumed growth and its profitability, I think it could trade at the same premium as Ericsson (ADR) (NASDAQ:ERIC), or a near 200% premium to its current price. Because let’s not forget, with the sale of assets, Alcatel could cut debt which would likely be greatly rewarded by Wall Street.


At this point, Alcatel can not compare to the operating efficiency of either Ericsson (ADR) (NASDAQ:ERIC) or Cisco Systems, Inc. (NASDAQ:CSCO), nor is it willing to try. Both Cisco Systems, Inc. (NASDAQ:CSCO) and Ericsson have grown from the ground up, and continue to gain market share in several of Alcatel Lucent SA (ADR) (NYSE:ALU)’s segments; as Alcatel has little money to invest in its growth. Therefore, Cisco and Ericsson remain market leaders, and great investments, while Alcatel is left in the dust selling its same old story.

In my opinion, the company made a horrible mistake by choosing to continue with operations that has led to its decline. As a result, those who had a plan have left, the only planned sale is already priced into the stock, and we can expect more of the same from a highly disappointing company.

The article You’re Being Sold the Same Old Story, I Wouldn’t Buy It originally appeared on and is written by Brian Nichols.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2