We rate Alcatel-Lucent at Neutral and raise our fair-value estimate to $1.80 from $1.25.
At constant currency Alcatel-Lucent (ticker: ALU) reported fourth-quarter revenue down 4% year-over-year and up 16% quarter-over-quarter to 4.10 billion euros, beating our €4.04 billion estimate and almost matching consensus of €4.12 billion.
Gross margins came in at 30.4% compared to our 30.0% estimate and consensus at 28.5%. Adjusted operating income of €117 million exceeded our and consensus forecasts of €81 million and €57 million.
Networks operating income was disappointing, however, coming in at a loss of €103 million or minus-4.3% operating margin. The company made up for this with a strong 16.9% operating margin in software, services and solutions.
The company continues to take share from Juniper Networks (JNPR). Alcatel-Lucent's Internet protocol (IP) revenue increased 26% year-over-year and 17% quarter-over-quarter to €574 million in the fourth quarter, driven by the Americas, Japan and China. The new 7950 XRS core router has six revenue customers and over 20 trials. Alcatel-Lucent expects to grow the IP business from €2 billion in revenue in 2012 to at least €3 billion in revenue by 2015.
Fourth-quarter optics revenue came in down 22% year-over-year and up 18% quarter-over-quarter to €565 million, beating our €547 million forecast. The company expects total optics revenue to decline in 2013 with submarine up and terrestrial down, primarily because 45% of its terrestrial business is still legacy synchronous optical networking and synchronous digital hierarchy (SONET/SDH).
The Dense wavelength division multiplexing (DWDM) business has turned a corner with a 14% year-over-year revenue decline in first-half 2012 and almost flat performance in second-half 2012.
Alcatel-Lucent has 85 customers for 100G DWDM, which made up 5% of DWDM sales in 2011 and 12% in 2012. We have a positive view of the 100G opportunity, but prefer Infinera (INFN) and Ciena (CIEN) since they don't have legacy exposure.
Despite stronger-than-expected fourth-quarter capital spending from AT&T (T) and Sprint Nextel (S), wireless revenue increased only 2% year-over-year and 9% quarter-over-quarter to €913 million, missing our €954 million forecast. Alcatel-Lucent saw a 35% decline in 2G/3G sales in 2012 offset by healthy long-term-evolution (LTE) growth.
The company announced Chief Executive Ben Verwaayen will step down once a successor is found and brought on board. We see this as a potential positive because the company repeatedly fell short of revenue and margin targets during Verwaayen's tenure.
Translated to mean...."we missed the last 40% move up and should have listened to that there tradestoxx feller"...
Well.let me now help them again....
My NEW price target is 3.00. Barring any surprises though it will likely take us until Q4 reporting date to hit that level.
Nearer term..I think ALU is a great buy at this level however although i'm more neutral on any significant upside. Q1 estimates are currently -10 cents..in line with my -8 to -12 estimates which i'll refine the closer we get to the end of the quarter. Q2 estimates are -5 which looks pretty close to me at this point.
Q3..we become profitable again and i think it will be reminscent of Q3 2011's results...and Q4..is going to be a nice quarter..both profitable and cash flow positive.
I'd buy/hold now however because i think this 1.50's to 1.70's level is the bottom. We won't be falling below the high 1.50's again IMO. When we start upwards again remains to be seen but I think you can draw a line from this price to 3.00 and that's what the next year will bring us. If you look at Q3 and Q4 2011 you'll see that it really took Q4's results to be released to really move the stock up and it might be the same this time around. I think we'll see some earlier positioning however back up towards the 2.00 level as investors anticipate each quarters additional cost cuts.
The wildcard here could be patent income or even a buyout. Or, very strong growth in business and so I think it's a definite hold for now at least. I also think a new CEO will be more aggressive about further cuts. That's why Ben's out ..because the board is tired of living on the edge which is what ALU has done since ben came on board. I think what this means is that looking longer term..we'll move beyond that 3.00 level and could see 5 to 6.00 even in time again.
In any event.what it says about the current price is that it's a great buy and hold. Keep in mind however that the losses are coming again in Q1 and 2 and that could keep a lid on the nearer term stock price.
This system can drive business to the 7950 XRS router to optimize the 17.6 Tbps system that allows 4 times more traffic on existing networks...
France Telecom-Orange and Alcatel-Lucent (Euronext and NYSE: ALU) today announced the deployment of the world's first optical link offering a capacity of 400 Gigabits per second (Gbps) per wavelength in a live network. Following a successful field trial, a 400 Gbps wavelength optical link is now operational between Paris and Lyon. This link, which was deployed within France Telecom-Orange's operational environment, represents a groundbreaking milestone for long-distance terrestrial network technology.
With capacity four times higher than the maximum bandwidth currently available and using 44 wavelengths, the new optical link can transmit up to 17.6 Terabits per second (Tbps) of traffic in total.