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Alcatel-Lucent (ALU)
Alcatel-Lucent Still Trying to Get Out of Merger's Shadow
Alcatel-Lucent, the Paris-based telecom giant formed in a $25 billion merger only two years ago, is in a crisis. The hefty price that Alcatel paid in the buyout is forcing the company to consider restructuring, the costs of the merger are in the billions, and revenues are not catching up with what is demanded by investors. To put it in brief: times are not looking that great. With 2008 forecasts looking less-than-stellar, and with further acquisition costs and more job cuts on the horizon, what are the odds that the company will make it out alive?
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The company is still struggling to find its footing several years after the high profile merger between French-based Alcatel and U.S.-based Lucent Technologies. The merger between the two rivals was expected to bring in revenues upward of $25 billion, but things haven't quite panned out that way. On Friday Alcatel-Lucent reported its latest round of quarterly earnings, and not surprisingly things were still looking dismal. The company reported a fourth quarter loss of $3.8 billion. Such a sizeable loss is rarely greeted with applause from investors, who also had to deal with Alcatel scrapping its 2007 dividend. Some of the loss came from $3.71 billion-worth of write downs, and the fact that the write downs came from the assets of Lucent losing value is hardly a good sign. Write downs aside, the company reported losses of $70 million, which is significantly better than the $900 million loss from last year.
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The newly merged company is experiencing some significant growing pains, especially in terms of employees and assets. Part of the down turn from last year was the result of redundant management and systems that did not quite mesh, which is the sort of problem that usually takes years to sort out. While fourth quarters generally help telecommunications companies post big gains, the fact that the merger was still underway meant that losses were almost inevitable. In 2007 the company cut nearly 7000 jobs, 8% of its workforce, and wants to cut an additional 16,000 soon.
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Investors are probably growing tired of playing the waiting game. A merger between two giants that was expected to give so much wound up taking quite a bit more in shareholder value. Since July 2007 shares have taken a proverbial nose dive from a peak of $14.35 to $6. Some of the problem stems from the high price that Alcatel paid for Lucent. With losses mounting the market value of the company is falling below its book value. Shares have fallen 17% so far in 2008.
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Things are probably going to remain sour for 2008. With the U.S. economy teetering on the edge of recession, and with world markets likely to see a downturn if America heads south, sales of telecommunications equipment probably will be paltry. With company executives expecting slow growth they opted to spend the dividend that investors generally receive in order to keep things up and running. Alcatel is certainly not alone in its dismal outlook: Cisco (CSCO: Charts, News, Offers) reported that it expects slow growth in the near future as well.
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