Alcatel-Lucent (ALU, Financial) recently signed five innovative contracts in LTE overlay that include two main final U.S. customers Pioneer Cellular Globe and nTelos in Philippines, which is considered to be a crucial step in its redeployment in Asia and external to China.
A closer look at the business conditions
Alcatel-Lucent illustrated a mix of positives and negatives during the third quarter of 2014. The plus points included the year-over-year growth of routing and terrestrial optics. On the negative side, the company recorded huge decline for platforms and witnessed weaker quarter in access post the extraordinary second quarter.
The business legend for Alcatel-Lucent is enabled by a robust backlog mainly concreted with SEA-ME-WE 5 turnkey multi-million dollars contract currently under implementation.
Optimistically, Alcatel-Lucent’s customer experience and particularly its Motive portfolio delivered a highly robust performance, remarkably enabled by the expansion of service and device managements by implementing Voice over Wi-Fi, VoLTE and Small Cell 4G devices.
In wireless, third quarter declined slightly after a solid second quarter in both North America and China. China continuously recorded robust performance in the third quarter with small cells constantly illustrating impressive growth.
Gaining more business
Alcatel-Lucent is witnessing continued healthy interest for fixed networks enabled by rising competition for broadband access in the U.S. as well as in Europe and solid APAC rollout external to China. Most importantly, its fixed business illustrated very strong cash flow and profitability.
Alcatel-Lucent signed four fresh and innovative contracts in IP core in the quarter that includes new declarations of Century Link, U.S. operator and every three operators in China and thus bringing the entire number of new wins to 32 for year-to-date.
The shares for WDM expanded further with fresh customers for its 1830 platform currently representing 50% of product revenues and greater volume of shares of 100G recorded at 35% in the third quarter of 2014 against 30% during fourth quarter of 2013.
Alcatel-Lucent also grabbed two awards at the Broadband World Forum in the previous week. One for being the top fixed broadband innovation provider with its G fast Vectoring and the other award was for being a superiorly innovative service provider of VDSL2 vectoring.
Alcatel-Lucent highlighted healthy revenue levels excluding the managed services. Also, the company’s growing savings ever since the release of the Shift Plan has now touched €645 million level.
Conclusion
The company was earlier in loss but is believed to return to the path of profitability with forward P/E expected to be 14.32 and better than the industry’s average P/E. However, the PEG ratio of -2.38 represents no growth but a decline as compared to the comparatively healthy industry’s average of 1.07.
The current ratio of 1.44 is good and a strong balance sheet. Hence, investors should consider Alcatel-Lucent looking at the solid long-term growth prospects indicated by the CAGR for the next five years per annum of 42.10%, above the industry’s average of 15.16%.
