No real improvement in the outlook for Alcatel-Lucent

Despite Alcatel-Lucent's planned job cuts and new focus on three market sectors (link to story), some analysts believe the equipment maker still has a ways to go to get back into a healthy state. RBC Capital Markets Managing Director - Mark Sue believes there's no real improvement in the outlook for Alcatel-Lucent, and if anything the market for telecom equipment could decline by between -8% and -12% for 2009 in constant currency.

According to Sue, "Risks remain as the company executes on its plans and reduced demand may be accentuated by increased price competition. "Furthermore, Alcatel's new strategy change may be viewed as only minor tweaks as the company continues to invest in money losing ventures such as WCDMA. "In particular, Alcatel plans to rationalize spending on CDMA and GSM and find a partner for WiMax, CEP, and non-IMS based fixed line products. Alcatel plans to boost spending in LTE, and WCDMA nonetheless, although we believe these new growth areas are not immune to price competition. Finding a partner for WCDMA may have been an option investors have been considering."

Sue concluded, "Alcatel-Lucent will focus on key areas of IP, Optical, mobile and fixed broadband going forward. Strict focus may enable the company to emerge as a profitable entity with steady cashflow. Gross margins remain industry low at 32.5% and supply chain improvements may help. Quicker divestiture of legacy business may quicken the process but may inevitably upset key customers." Related stories: Alcatel-Lucent cuts jobs, focuses attention on three sectors Will Alcatel-Lucent announce killing off its WiMAX division this Friday?

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