The only thing new is that Verizon will spend on the high end of estimates for the year. ALU is well aware of how much has been spent already and how much is to come. Nothing they are not anticipating. In the Q1 call Combes said there had been some frontloading by American carriers. As for Q4, analysts estimate a decline from last year, which would reflect carriers not backloading this year as in previous ones. Can't say how the market will react. Maybe investors weren't paying attention, but there is nothing here ALU hasn't long planned for in executing the Shift.
ticker - thanks so much for your post. I certainly am hoping fundamentals remain on track and am awaiting, with fear and trembling, confirmation on Oct. 30. I am wondering if you are at all concerned that rapid changes in the field, particular SDN and such (I am no technical expert) are changing the market so quickly that the post-Shift Plan world (2016) will be different (in terms of what customers buy) than the world ALU prepared for? For example, they had a PR today about tests that showed great increases in capacity over fiber from some new development of theirs, which sounds great, but does that mean they will be replacing sales of big, expensive equipment with cheap software? Clearly, when people speak of such things as needing 10 times the capacity by 2018 or whatever they are saying, carriers aren't going to increase their budgets by 10 times. They may even get it while reducing their budgets. Obviously, someone will make a lot of money on this, but is an older company that needs almost $20 billion in sales to get by in a precarious position? Was this an issue in last quarter's relatively disappointing IP results? As you can see, I'm a long term investor, and my focus is more on where the stock will be in 2016 than on Oct. 31, 2014. Thanks.
sam (whichever sam you are!!!) - I understand the concerns about ALU's crown jewel, routers, and what the Juniper warning means. I also recognize that management is not an objective source for all info. Still, I would be surprised if Combes gave his 2015 estimate of $7 billion in IP sales, and reiterated it with supreme confidence, if he didn't actually expect substantially more. I believe one analyst estimated $9 billion but don't hold me to that as I may be having memory issues. I have to think Combes left himself a lot of play with that figure so as not to risk being embarrassed later on. A reduction in that number now will not be a good sign.
One other thing that has concerned me lately, although it should hurt ALU's European competitors equally if true, is the European agreement with China. Not because it hurts in Europe - theoretically, China gives the Europeans something comparable to what Europe gives the Chinese. Perhaps there is some concern the love fest might spread to America. John Kerry is supposed to be heading over there to improve US-China relations. If the U.S. reopened its market to Huawei and ZTE, there would be nothing given in return, as it is European companies that would be hurt, not American. Hopefully, the distrust on this issue remains sufficient to put such considerations off for a long time.
I haven't seen any evidence of loss of market share, but that would certainly be devastating for the stock. We will have to wait for Oct. 30 to find out more about what is going on. That said, I feel your pain. I lost over 50% of my investment after I first purchased ALU and was certainly not pleased with management's performance. Fortunately, the Board also became displeased and replaced the CEO with Combes. As best I can tell, he has done an excellent job considering the mess he inherited, though I wish he at least made an attempt to support his stock. Again, we will know more about his continuing performance on Oct. 30, and one hopes that if ALU is not at a minimum keeping up with its peers, that the Board is working some sort of corporate deals with others in the field to preserve shareholders' investment. Hopefully, springer will prove right and we will all be rewarded for our at times strained patience.
b. "expanding Core revenue" - is it possible we are seeing a faster than expected migration to software in dumb machines that may reduce, rather than increase core revenue? Is that comment by one analyst that customers are demanding 50% price reduction from Juniper for edge routers (I suspect this is an exaggerated amount) a sign that the market may be severely shaken up at a time when ALU can least afford it? Perhaps ALU will emerge as a leader in SDN and the like (and maybe not) but this could be a difficult transition, carrier spending may be reduced as this stuff is much cheaper, and the winners and losers are today unknown.
tickerguy - as always, thanks for your thoughtful, honest analysis. We need more of that here. There are a couple of things you say that I have concerns about and would be interested in further thoughts you may have about those concerns. I am a long, but the size of the decline strikes me as more than just profit taking, which may imply their are deeper issues at ALU. I simply don't know.
1. "Historically, each year Q1 is ALU’s weakest quarter followed by improvement in Q2, further improvement in Q3 with Q4 being its best quarter, a sequence ALU investors are quite likely to experience this year." While Q4 will almost certainly be the best, Combes did indicate at the beginning of the year they would even out the quarters more this year. Could this lead to a disappointment in Q4, exacerbated if it also turns out carriers don't empty out budgets in Q4 as much as usual?
2. "In addition, 2015 will prove to be a much stronger year than 2014 because of the absence of the restructuring expenses of 2014 and expanding Core revenue." Two things here:
a. "absence of the restructuring expenses of 2014" - The Shift Plan runs through 2015 so there will continue to be restructuring expenses. Those expenses have been significantly higher in 2014 than I expected. Hopefully, that is because they are way ahead of schedule and will reduce 2015 expenses, but I don't know whether this is the explanation, or simply that it is more costly than anticipated. The reality is they probably need to expand their cuts, which would bring on additional restructuring costs, but this may not be politically possible, particularly in France.
Thanks, Jack. Your answers are appreciated. Q3 will be interesting, guidance in particular. If not volunteered, Combes will surely be asked about the $7 billion IP projection. I am thinking he will have no choice but to say market conditions have changed, but I would rather hear a reaffirmation.
jack - please understand that when you make fun of investors, you do not instruct them. You just #$%$ them off. As you know, I am one such person. Sadly, it deprives us of your knowledge, which is quite valuable.
On last week's comment that you would be looking at ALU as a long term investment, I'm still very interested in your views. If we have a shortfall this quarter and in future guidance (likely), the stock will probably get creamed again. And yet if it is truly just a delay of orders, it will not hurt the long term investor, despite the short term pain. But I am becoming more concerned about SDN and cheapo, dumb machine with smart software. Are carriers delaying spending so they can take advantage of this coming, cheaper option? And even if ALU becomes a leader in this field (no guarantee) will it be as profitable, and even if it is, will we first have to go through another costly transition ALU can hardly afford?
All depends on the market. If it collapses this afternoon, it will take ALU down with it. If it continues to rise, we'll do okay.
jack - thanks. I'll be interested to hear what you find. I think a warning at this point, so long as it is something fairly small like Juniper's, might even help the stock. The market must be anticipating something terrible. When GT, Apple's supposed glass supplier, lost 90% in one day, at least you knew why. Here I really have no clue, but I can't imagine it can really be this bad........ can it?
jack - I really don't know how you compile a progress list. As far as I have seen, all of the stated goals are for the end of 2015. So they are to be profitable, cash positive, have the job cuts completed, sell off certain businesses (or enough businesses to equal a specified dollar amount), and so on by end of 2015. But what are the interim goals? I don't know. When cuts in expenditures exceed the percentage of time elapsed (60% of cost cuts half way through the Plan), one presumed they are "ahead of schedule" (as Combes has said), assuming the schedule is in equal increments. Even the more recently stated $7 billion in IP revenue in 2015 won't be known until the end of 2015, coinciding with the end of the Shift Plan. While everything (in terms of stock price) was going wonderfully, most of us were not terribly concerned (and yes, you have a right to chastise me for that). Now that it is not, it would be nice to have some answers. I suspect the analysts will have more meaningful ones at the next reporting, unless it turns out everything is still going just fine.
jack - I would like to see that too, but not in terms of the stated goals. As far as I can see, the cuts in expenses, focusing of the business and R&D budget are going as planned, though it does appear to me that this may be costing more than anticipated. What we have never seen is what (if any) are the targets for sales? One would think there must be some, but we don't know what they are, and naturally enough, cannot tell whether these targets are being met, even though we can see whether targets for cuts are on schedule.
"He has already lost some credibility after last earnings. He also said that IP revenue being flat was a one off."
Indeed. If IP disappoints again, after calling it a one-time event, it will look like he doesn't know what's going on in his business. That's what happened to Ben. After a disastrous Q1 2012, he attributed it to Chinese "calendarization," the Chinese putting off their orders for a quarter. When those orders never materialized, he looked clueless. After the bad Q2, that is when ALU's Chairman went to French authorities to tell them there would have to be job cuts, and Ben's fate was sealed, even if it took him a few months to realize it. Combes has looked in complete control, except for that "one time" glitch last quarter. There is much credibility to be lost if it happens again.
No I don't, unless things are really much worse than we imagine. They have to be bad enough for ALU to be able to go to French authorities and say we have to sell the company, and will find someone willing to preserve French jobs, because the alternative is not only no more French company, but no more jobs, and a bunch of angry shareholders whose investment you have destroyed.
Not sure what good news would create a reaction like this. If the company was to be sold (don't I wish) they would want to support the price. The lower the stock price, the less a buyer will want to pay for it.
"Work like that helps explain how the first company to build a quantum computer might gain an advantage virtually unprecedented in the history of technology."
Someone in Bell Labs is working on this and may (or may not) have the lead toward creating a quantum computer. Microsoft is working on it, but the article says that some guy at Bell Labs may be farther along. Can't post a link, but it is the first listing if you do a Google search for "technologyreview 531606." (no quotation marks)
Would be interested if any amateur physicists out there have any thoughts.
No, they can talk about finances so long as it is announced publicly to everyone at once. Juniper just warned of an earnings shortfall while they officially announce earnings in just 2 weeks. They will be a little short on sales and eanings and the stock is down 4%, less than half of what we were down today. Even a small warning would be good now because the market is imagining something terrible and the company is doing nothing to reassure its shareholders that this is not so.
Juniper down 4% on its warning, ALU down 10% because maybe it applies to them too. Is this fair? Arghhh.