Alcatel-Lucent came to our attention in July 2012,
"Finally, a good former institutional customer sponsors a successful international equity mutual fund, and looking over their holdings, I noticed Alcatel-Lucent, S.A., owned in the Sponsored ADR form. I haven't looked at this company since Carly Fiorina was working her magic at Lucent in 1999. You don't have to be an electrical engineer to understand these businesses, although much of the foggy commentary about these companies, like Juniper Networks, is replete with capitalized acronyms. I read the press release and was a bit distraught. I then went to the company's website and listened to the conference call. Wow! This was truly a dismal performance, and the cash flows in the quarter were awful, especially given the reduced outlook for 2012, a large debt load, upcoming rollovers, and loss of revenues as the company leaves behind "legacy" technology and moves to "new platforms." I went back to my fund's annual report, and they've taken a forty percent hit from last December to date. Value investors may not get it right very time, but they probably can demonstrate their thesis with some numbers. I may have to call my fund and find out."Now tonight's Wall Street Journal online updates the story, and it's not encouraging. My fund clearly missed on this investment, and a large, reactionary employment downsizing isn't at all encouraging. Technology gear for the guts of networks is a commodity business, and the evolution of companies like Huawei has hastened this shift.
Investors will hear echoes of this theme as proprietary servers start moving down this road too. Historical margins for companies like Dell and HP in servers may prove to be artifacts too.