Stay Invested in Alcatel-LucentALU) has posted a mixed performance on the stock market in 2015 as its stock is up only 4.5% this year. This is in spite of steady growth that Alcatel has posted in recent quarters on both the top and bottom lines. For example, in the second quarter, its revenue was up 6% from the prior-year period, while the bottom line had increased 29%.
Additionally, the company is focused on improving its free cash flow profile, and this is a result of its earnings growth. For instance, last quarter, Alcatel delivered 65 million Euros of free cash flow as against negative free cash flow of 205 million Euros in the second quarter of 2014.
Going forward, I believe that Alcatel will be able to continue improving its performance as it is focusing on product development.
Product development will be a catalyst
Alcatel is seeing substantial growth in IP routing, IP transport and IP platforms under core networking operating segment of Alcatel-Lucent. IP routing growth is supported by continued expansion in CALA and EMEA. Core routing also achieved over 5 new wins in the quarter, adding to a net of 44 customers till date. Nuage added 5 customers, making a net of 25 customers till date along with significant double-digit year-over-year expansion for non-telcos.
Alcatel-Lucent is also witnessing significant double-digit growth in Terrestrial optics allowed by APAC, CALA and EMEA. The company lately introduced innovative Rapport IP communications platform which is expected to drive significant customer traction. IMS for VoLTE is also gaining popularity in NA and other key geographic regions. Further, Cloudband is engaged in 27 strategic projects that includes 5 commercial operations.
The significantly visible growths across each of the company’s key operating segments are primarily supported by its solid balance sheet with smaller debt level and notable free cash flows.
Opportunities to consider
Alcatel-Lucent has successfully performed the first field test of the new vRAN-based architecture in collaboration with China Mobile at Tisinghua University in Beijing. The technology company is gaining improved customer traction in Small Cells, adding over 3 customers for a net of 82 till date.
Alcatel-Lucent is accelerating the deployment of 5G technology across various Chinese provinces. The healthy growths of CALA and APAC are somewhat balancing EMEA and North America declines. VDSL2 Vectoring is a new technology having 34 customers till date and further gaining traction. Also, there’s significant development on NGPON2 and G.Fast in Japan.
The impressive growth in core networking and access platforms of Alcatel-Lucent are mainly due to significant customer traction for these key technology platforms which are believed to drive notable top and bottom line growths for the company.
Alcatel-Lucent submarine networks are believed to develop a 1,900 km Sonangol Offshore Optical Cable (SOOC) and thus successfully deliver fiber optic submarine broadband connectivity to key oil and gas production facilities offshore Angola.
The strategic partnership of Alcatel-Lucent and Nokia is forecasted to deliver enhanced profitability for the both the companies. According to a recent research by Cisco, Nokia has superior presence in India with no IP products and Alcatel-Lucent has no actual presence in India but having advanced IP products and given a robust IP growth in India, this key partnership is expected to deliver impressive returns for both the partners.
Alcatel-Lucent is keen on expanding its presence globally through strategically partnering with Nokia to mark its presence in India which is a budding technology market. Further, the planned under-water fiber optic broadband connectivity is expected to drive significant customer traction for its advanced connecting technology.
Hence, as evident from the points discussed above, there are a number of positives about Alcatel-Lucent that will act as a catalyst for the company going forward. Hence, in my opinion, it makes sense to stay invested in the company even though it has not delivered strong gains on the stock market this year.
Published on Oct 11, 2015By Harsh Singh Chauhan