Alcatel-Lucent (ALU, Financial) released mixed results recently. The French network equipment maker has executed various strategic initiatives such as cost-saving and repositioning programs that helped the company to narrowed down its net loss drastically by 80% to $101 million, or earnings of $0.03 per share from $479 million, or earnings of $0.16 share per last year in the same quarter.
Its first quarter revenue came pretty much in line with consensus estimates but fell short by 3.4% to $4.02 as against $4.16 billion in the same quarter last year. Also the gross profit was quite better at 32%; along with net operating loss of 2% of the revenue, those were the few highlights that impressed about the results as it beats analysts forecasts of 5% net operating loss for the quarter.
Alcatel's positive moves
Alcatel-Lucent displayed strength in IP routing as well as progress in profitability of IP transport that together accounted for more than 16% growth for the quarter year-on-year basis. Also, the recent rollout of 1830 and 100G WDM platforms accounted for 44% and 30% respectively of its total revenue.
The company has launched more than 26 new design wins at the beginning of the quarter that are gaining notable momentum in the market at the moment, along with steadfast growth in its flagship products like IMS, SDM and subscriber data management on the back of continuous deployment of LTE platforms that have now become profit accretive to the company.
Also, Alcatel-Lucent certainly looks resurrected with its shift plan that the company started practicing of late. It should help the company to reduce its expenditures, accelerate revenue and improve profitability in the coming quarters. The company has done significantly well in all three departments so far and promises to do better going forward. Also there are a few very productive turnarounds the company has initiated recently that may increase its chances for winning extra market share and enhancing its growth in the future.
Key partnerships
Alcatel-Lucent has entered into a constructive relationship with Chorus, a New Zealand-based telecom and infrastructure company. Chorus will use selected IP routing technology from Alcatel-Lucent to build its IP core network. Alcatel’s IP routing is growing at a solid double-digit pace as it reported 16% growth in the first quarter.
In addition, the company has also built a strategic partnership with Qualcomm that should further bring innovation in IP Routing, WDM, Cloud and ultra-broadband namely fiber and vectoring for fixed and LTE. ALU has also co-developed a team of specialist with its partner Qualcomm to work on the domain of small cells to deliver the multi standard products with Wi-Fi to its customers that the company plans to launch in the second half of 2014.
Opportunities ahead
The company has recorded a few design wins that should help the company to grow its business at a good pace. Its core router products continue to perform well in the market. ALU has recently launched four new wins during the quarter that has started gaining traction in the market, and the company now expects to gain enough market shares going forward.
Besides, its Nuage venture has been supplemented with two new additional commercial wins during the quarter, including Numergy that has been just announced will possibly help the company lift the performance of its core routers products in the coming months. Nuage Venture enjoys significant market in software-defined networking (SDN) and therefore should enhance its growth for the company in the category and win new business in the future.
In addition, the company has witnessed high single-digit growth in its terrestrial optics and Submarine segment. While legacy optics is stabilized, the company now counts heavily on its 1830 WDM platform that should drive its growth going forward. Also its product mix in terrestrial optics has displayed positive movement as its 1830 WDM platform now accounts for nearly 44% to the total revenue. Also the company is expected to continue the deployment of its 100G platform in WDM line card shipment that will further increase its chances to display great margins going forward.
Also the company is planning to announce major virtualization contracts with carriers around the world like AT&T, NTT and China Mobile that will definitely increase its market for NFV and drive its growth further.
Wrapping up
Alcatel-Lucent currently trades at the forward P/E of 16.00, with PEG ratio less than one stands at 0.61, which indicate that there is a lot of room for the company to grow in the market going forward. Moreover, the analysts have estimated CAGR of 100.40%, which is more than five times of the industry’s average CAGR of 18.27% for the next five years, displays tremendous growth opportunity for the company in the future. Hence investors shouldn’t miss the opportunity to include the stock in their portfolio.
