Alcatel-Lucent faces tough questions from shareholders

Alcatel-Lucent faced a raucous annual shareholder meeting Friday, with investors questioning the company's turnaround strategy, its cash position and the direction of CEO Ben Verwaayen.

The infrastructure vendor reported its first annual profit last year since the merger of  French Alcatel and U.S.-based Lucent six years ago. However the company's shares in the telecom-gear giant have lost two-thirds of their value in the past year.

Verwaayen noted during the meeting that the company plans €500 million of cost savings in 2012, including €200 million of cuts to fixed costs. he also said that Alcatel-Lucent had cut €3 billion in fixed costs in the last three years. "It's not bad," he said. "But it's not enough."

Verwaayen also recently highlighted four key company achievements over the past 12 months, with the launch of the network infrastructure product lightRadio, the development of CloudBand, work to enable smart grid and real-time applications and the company's OpenTouch suite of communications platforms.

However, rpessure is mounting on the firm. The company could be facing a possible default on $765 million of convertible debt due in around 12 months' time, says analyst Pierre Ferragu at Bernstein Research. Unless gross margin rise significantly from those reported in the first quarter, Ferragu said he believes that the infrastructure company will be facing "significant headwinds," according to Street Insider. Following the debt payment, Bernstein thinks Alcatel will be left with about €2 billion in cash.

While the analyst believes Alcatel-Lucent is on a relatively stable footing in the wireless infrastructure segment, the "subscale" business will likely continue bleeding money in the future. Ferragu notes that the company commands 10 per cent of the market for base stations and wireless equipment, versus 42 per cent for Ericsson, 20 per cent for Nokia Siemens Networks and 18 per cent for Huawei.

Also of concern is the decline in operator investment in CDMA equipment as they increasingly migrate to LTE. However, Ferragu believes Alcatel would still remain profitable on a group basis despite best-case scenarios of wireless margins at -7 per cent in 2013 and -6 per cent in 2014.

For more:
- see this WSJ article (sub. req.)
- see this Street Insider article
- see this Telecom Lead article

Related Articles:
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Rumour mill: Telefónica Spain to select Alca-Lu for LTE network
Alcatel-Lucent lowers outlook as European turmoil hits home
Alca-Lu patent portfolio could be worth $9B, more than company
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