Alcatel-Lucent still confident of mid-2010 recovery

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Alcatel-Lucent still confident of mid-2010 recovery

By CAROLINE GABRIEL

Published: 16 March, 2009

READ MORE: Alcatel-Lucent

Despite the huge upheavals of the past two years, Alcatel-Lucent remains obstinately optimistic, and last week CFO Paul Tufano repeated claims that the company would regain profitability by the second half of 2010.

"Regarding net income, we expect to return to profits during 2010, most likely in the second half of the year," Tufano said in an interview with French newspaper Les Echos. The company reported a $5bn net loss in the fourth quarter of 2008, mainly on writedowns, and announced a plan to cut costs by $978m during 2009 and maintain its market share - a goal that gained some credibility when it won the largest share of Verizon's LTE contract.

Analysts remain divided on whether ALU's plans are realistic, and whether it should, in fact, have exited the wireless business, despite the promises of LTE and Chinese deals, because the French giant comes third behind Ericsson and Nokia Siemens, and is threatened by Huawei.

The company received a boost from Robert W Baird on Friday, when its stock was upgraded from 'neutral' to 'outperform' and the target price from $2 to $3. A research note from the firm recommended buying the stock and said "the risk/reward profile is attractive, in our view". It said the biggest concern for investors was the balance sheet, "but we believe its complexity has deterred investors from analyzing it in detail. Our analysis suggests the company's liquidity position is not overly concerning and balance sheet risks may be overestimated by the market. Alcatel's cash position is in reasonable shape." The note went on to say that pension and debt obligations were "manageable", and was positive about the decision to stay in wireless, since an "end-to-end product portfolio and global presence would help it gain market share in the next spending cycle" including Chinese 3G.