Alcatel/Lucent: The Domino Factor
MARCH 24, 2006
http://www.lightreading.com/document.asp?doc_id=91438&print=true
With Alcatel (NYSE: ALA - message board; Paris: CGEP:PA) and Lucent
Technologies Inc. (NYSE: LU - message board) admitting to merger talks,
questions arise about the implications of such a marriage on the rest of
the telecom equipment segment. (See Lucent, Alcatel Rekindle the Flame and
Lucent & Alcatel: Quigley or Russo?)
A combined Alcatel/Lucent would generate revenues of more than $25 billion
a year, at current rates, and be a formidable competitor in just about
every telecom segment, from the edge of the network all the way to a
next-generation core. (See Alcatel Pays Up and Lucent Cuts 2006 Outlook.)
That includes mobile infrastructure, where Lucent is the market leader in
CDMA equipment and Alcatel has built a position in GSM/UMTS. Combining the
two would make for a major global player, says Patrick Donegan, senior
analyst at Heavy Reading.
"From a wireless perspective, a combined Lucent and Alcatel would be a
clear global number two behind Ericsson. It would be number one in CDMA and
be approaching a 10 percent share in GSM, with strong momentum in the key
emerging market opportunities. In W-CDMA it would have strong account
presence in Cingular Wireless LLC and Orange SA (London/Paris: OGE -
message board) as well as good prospects in China, Russia, and India. And
it would also have a presence in WiMax," says Donegan. (See Lucent,
Cingular Prep HSDPA and Alcatel Supplies Orange).
So what sort of impact might such a combination have on the equipment
sector? Donegan reckons it could light a fire under some of the other vendors.
Once one of these big deals is done, that could trigger others to happen a
lot more quickly than is generally thought. The case for Nortel Networks
Ltd. (NYSE/Toronto: NT - message board) and Siemens Communications Group
combining remains strong," says the analyst. (See Sources: Lucent, Nokia in
Play for Siemens.)
Donegan believes vendor combinations that are strong in fixed and wireless,
and which have significant footholds in European and North American
carriers, make a lot of sense. And that could leave some of the other
vendors vulnerable.
"As wireline and wireless networks begin converging, perhaps the greatest
uncertainty surrounds Nokia Corp. (NYSE: NOK - message board) and Motorola
Inc. (NYSE: MOT - message board) and whether they will look to commit
further to the infrastructure market or else exit altogether, he adds.
The list of companies affected by an Alcatel/Lucent combo doesn't stop
there, with Cisco Systems Inc. (Nasdaq: CSCO - message board), Ericsson AB
(Nasdaq: ERICY - message board), and Juniper Networks Inc. (Nasdaq: JNPR -
message board) all likely to consider their strengths and weaknesses in a
new vendor world, while Chinese companies Huawei Technologies Co. Ltd. and
ZTE Corp. (Shenzhen: 000063 - message board; Hong Kong: 0763) could also
come into play -- though few industry watchers feel Huawei is ready to open
itself to greater financial scrutiny at present.
And there's one growth area that a combined Alcatel/Lucent might look
closely at in terms of its future growth. Home networking, the equipment
that sits in the broadband user's home, has grown in importance for
carriers and vendors alike in the past 12 to 18 months, though Alcatel has
made an investment in one of the home gateway sector's leading lights,
2Wire Inc. . (See Alcatel Buys Into 2Wire , Cisco to Acquire
Scientific-Atlanta, BB Forum: Gateway Goals for Carriers, and IP Video: In
the House.)
Ray Le Maistre, International News Editor, Light Reading
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Alcatel, Thomson in M&A Spotlight
MARCH 27, 2006
http://www.lightreading.com/document.asp?doc_id=91489&print=true
The board of Alcatel (NYSE: ALA - message board; Paris: CGEP:PA) will meet
this Thursday to discuss its potential "merger of equals" with U.S. firm
Lucent Technologies Inc. (NYSE: LU - message board), the company confirmed
this morning.
The duo confirmed late last week that they're discussing a potential
marriage that would create an industry giant with annual revenues of more
than $25 billion a year. (See Lucent, Alcatel Rekindle the Flame,
Alcatel/Lucent: The Domino Factor, and Lucent & Alcatel: Quigley or Russo?)
But Alcatel isn't the only French telecom player under the M&A spotlight at
present. Thomson (NYSE: TMS - message board; Euronext Paris: 18453), which
has built a growing presence in the telecom equipment market through
acquisitions and set-top box and home gateway developments, is rumored to
be in line for a private equity takeover bid. (See Thomson Buys IPTV
Player, Thomson Buys Cirpack, and BT Gets a Gateway.)
According to French and British media reports, a consortium of private
equity players, including Silver Lake Partners , is lining up a $6 billion
bid for the firm, which derives most of its revenues from electronic goods
for the media industry and residential market. According to Reuters,
Thomson has no comment on the reports "at this stage."
The company, which recently launched a number of new telecom products at
the recent CeBIT tradeshow, believes it's on course to generate 1 billion
in revenues from its telecom group, which now includes softswitching and
IPTV middleware, in 2006. (See Cisco, Nortel: CeBIT No-Shows.)
Ray Le Maistre, International News Editor, Light Reading
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Lucent & Alcatel: Quigley or Russo?
MARCH 24, 2006
http://www.lightreading.com/document.asp?doc_id=91437&print=true
Early reports on the merger talks between Alcatel (NYSE: ALA - message
board; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU - message
board) put the latter's CEO, Pat Russo, as the leading contender to take
the helm should the "merger of equals," as the companies have called it,
come off. (See Lucent, Alcatel Rekindle the Flame.)
But that would be a major blow to Alcatel's CEO-in-waiting, Mike Quigley,
who has been recommended by the French giant's current leader, Serge
Tchuruk, as his successor.
Tchuruk is due to step down as CEO in July, with Quigley having earned his
stripes and worked his way up to president and chief operating officer
(COO) on the back of his strong performance as the head of Alcatel's
business in North America. (See Alcatel Gets Quigley With It.)
Quigley's coup was to land a massive role as the lead integrator and main
equipment supplier for Project Lightspeed at SBC, now part of AT&T Inc.
(NYSE: T - message board). He has also been the driving force behind
Alcatel's dominance in the DSL equipment market. (See Mais Alors! Alcatel
Bags $1.7B SBC Deal , Alcatel Hits 80M DSL Lines , and Infonetics: DSL
Aggregation Growing.)
And thanks to its partnership with Microsoft Corp. (Nasdaq: MSFT - message
board), Alcatel has also left Lucent trailing in the North American IPTV
sector. (See BellSouth's Smith Details IPTV Plans, Verizon Makes Microsoft
Video King, SBC Awards Microsoft $400M IPTV Deal , and Is Microsoft Finally
Carrier Grade?.)
But with next-generation architectures and fixed/mobile convergence such
hot topics, Lucent has made significant inroads with many of those major
vendors with its IP Multimedia Subsytem (IMS) offering. (See Lucent Lands
BellSouth IMS Deal, SBC Jumps on Lucent IMS Bandwagon, Cingular Picks
Lucent for IMS, and Lucent in the Lead for Verizon IMS?.)
Some in the industry believe Alcatel got bogged down in the Lightspeed
project and let Lucent slip under the radar and grab back some of the
limelight, a situation that some Alcatel insiders say caused tension
between Tchuruk and Quigley. That, plus Russo's experience as a CEO -- she
took the helm in early 2002 and has clung on to power since -- could give
her the edge. (See Lucent's Next Leader.)
But there will be plenty of arguments against making Russo the CEO of a
combined Alcatel/Lucent, given that the U.S. company has shrunk
dramatically, has pension concerns, and recently cut its 2006 outlook. (See
Lucent Cuts 2006 Outlook and Pension Concerns Hit Lucent.)
Alcatel, meanwhile, looks healthy by comparison. (See Alcatel Pays Up.)
Then there's culture and politics to consider. Is a French company that is
larger and currently more successful than its potential U.S. partner going
to hand over the reins?
Neither company is commenting any further, and even the normal gossip lines
appear to be closed off.
Alcatel's share price is up 0.28, more than 2 percent, to 13.13
(US$15.77) on the Paris exchange this morning, while Lucent's stock edged
down slightly, by 2 cents to $2.80, in after-hours trading in New York.
Which leaves the question of what a new combined Alcatel and Lucent might
be called. With Russo at the helm, it could be Lucatel, though that sounds
more like a medicine for sore throats than a major vendor. With Quigley in
charge, Alcacent could be an option, though sounding like a carbonated
drink would stand against it.
Ray Le Maistre, International News Editor, Light Reading
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Lucent, Alcatel Rekindle the Flame
MARCH 24, 2006
http://www.lightreading.com/document.asp?doc_id=91433&print=true
Alcatel (NYSE: ALA - message board; Paris: CGEP:PA) and Lucent Technologies
Inc. (NYSE: LU - message board) confirmed last night they are in talks for
a possible $33 billion "merger of equals."
"We can confirm that Lucent and Alcatel are engaged in discussions about a
potential merger of equals that is intended to be priced at market," the
companies said in a press release issued just before midnight Eastern time.
"There can be no assurances that any agreement will be reached or that a
transaction will be consummated. We will have no further comment until an
agreement is reached or the discussions are terminated."
Such a deal would further the consolidation among large equipment vendors,
as it comes on the heels of the Ericsson AB (Nasdaq: ERICY - message board)
purchase of Marconi Corp. plc (Nasdaq: MRCIY - message board; London: MONI)
assets. (See Ericsson Buys Bulk of Marconi.)
But it almost certainly takes Lucent out of the running for Siemens
Communications Group . Earlier this week, Lucent and Nokia Corp. (NYSE: NOK
- message board) were said to be interested in that division of Siemens AG
(NYSE: SI - message board; Frankfurt: SIE). (See Sources: Lucent, Nokia in
Play for Siemens.)
Vendor consolidation makes sense given recent carrier mergers, particularly
in the United States. The recently enlarged AT&T Inc. (NYSE: T - message
board) has put in its bid for BellSouth Corp. (NYSE: BLS - message board),
and Verizon Communications Inc. (NYSE: VZ - message board) is said to be
eyeing Qwest Communications International Inc. (NYSE: Q - message board).
With fewer customers to pursue, it seems natural for the vendors to start
glomming together as well. (See Ma Bell Is Back! and Verizon Merger Rumors
Send Qwest Up.)
But wait -- doesn't this deal sound familiar? It should. Alcatel and Lucent
did the merger dance in 2001, when the dotcom bubble was deflating. Reports
back then said the deal would have had Alcatel taking the reins, satisfying
the French company's craving for a stronger North American presence. But
the whole thing collapsed within a month of being reported. (See
Lucent/Alcatel Rumors Fly, Alcatel/Lucent Work Continues, and Alcatel,
Lucent Throw in the Towel.)
Things are different now. After years in the dumps, Lucent is again being
taken seriously, thanks to a resurgence keyed to IMS. (See LR Names 2005
Leading Lights Winners, SBC Jumps on Lucent IMS Bandwagon, and Lucent Lands
BellSouth IMS Deal.)
Lucent isn't entirely out of the woods. The company still faces questions
about its pension overhang, and shareholders recently rebelled against what
they say is exorbitant executive pay. (See Pension Concerns Hit Lucent and
Lucent Shareholders Rebel .)
Still, Lucent's fortunes have turned the tables on Alcatel. This time,
according to the Wall Street Journal, it's Lucent taking the lead in the
merger, with Lucent chief executive Pat Russo being considered as the
merged companies' CEO -- even though Alcatel's $20.2 billion valuation
dwarfs Lucent's $12.6 billion. The report also says the companies would be
equally represented on the combined board of directors; Lucent's
dissatisfaction with the board split reportedly helped doom the 2001 deal.
And to think we were all making a fuss over $207 million for Riverstone
Networks Inc. (OTC: RSTN.PK) . (See Lucent to Spend $207M for Riverstone.)
Craig Matsumoto, Senior Editor, Light Reading
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Ericsson's Riverstone Hangover
MARCH 24, 2006
http://www.lightreading.com/document.asp?doc_id=91452&print=true
A lot can happen in a week: On Friday, March 17, the market was surprised
when Ericsson AB (Nasdaq: ERICY - message board) challenged Lucent
Technologies Inc. (NYSE: LU - message board) for the right to buy Ethernet
equipment company Riverstone Networks Inc. (OTC: RSTN.PK) . (See Ericsson
Wants Riverstone.)
A few days later Lucent bid higher and won the prize. (See Lucent to Spend
$207M for Riverstone and Lucent/Riverstone OK.)
So where does that leave Ericsson's carrier Ethernet strategy? Bidding for
Riverstone suggests the vendor, better known for its wireless activities
until it snapped up wireline vendor Marconi, believes it has a hole in its
product portfolio. (See Ericsson Buys Bulk of Marconi.)
Not so, says Peter Linder, wireline technical director at Ericsson. He says
the main reason behind the bid was the long-standing partnership between
Marconi and Riverstone: "They have worked together in the past so it was
natural for us to look at Riverstone." (See Riverstone Hitches a Ride With
Marconi.)
And losing out to Lucent isn't a major blow, according to the Ericsson man.
He says his company has some Ethernet capabilities from the Marconi deal
and from another acquisition made in 2005, of Axxessit. (See Ericsson
Swoops on Axxessit.)
"We also have established partnerships with Cisco Systems Inc. (Nasdaq:
CSCO - message board) and Extreme Networks Inc. (Nasdaq: EXTR - message
board)," notes Linder, and losing the bidding war for Riverstone "hasn't
altered our strategy. The partnerships give us a great deal of flexibility
and have worked well for us up to now."
Stan Hubbard, senior analyst at Heavy Reading, notes that even though
Riverstone has partnered with Lucent, Marconi, and Chinese vendor ZTE Corp.
(Shenzhen: 000063 - message board; Hong Kong: 0763), "Riverstone was more
strategic to Lucent. Ericsson has a longstanding relationship with Extreme,
and I would expect those ties will become more important now."
Hubbard notes, though, that Riverstone and Extreme have different
approaches to the rollout of Ethernet infrastructure. "There is a different
technology angle at play here. Riverstone is more strongly in the MPLS/VPLS
camp, while Extreme is highlighting the value of Mac-in-Mac technology as
one option for building out next-generation, carrier-grade Ethernet networks."
So, while Extreme and Cisco can provide backup, will Ericsson keep looking
to take ownership of more Ethernet equipment assets? Linder says his
company's "chief strategy is to create a strong foothold in transport and
access, two volume segments," which the Marconi acquisition has helped deliver.
"Add to that our softswitching and VOIP systems, and our partners, and we
have a network transformation story for carriers. We don't believe it has
to be an Ericsson product for every link in the chain."
But never say never. "We'll continue to look at things over time that make
sense," Lindner adds.
And what of the current industry M&A chatter? At least one analyst believes
Ericsson would be in the queue to pick up some Siemens Communications Group
assets. (See Sources: Lucent, Nokia in Play for Siemens.)
Naturally, Linder declines to comment. "There seems to be different
companies being speculated about -- that's the nature of the market at the
moment."
Ray Le Maistre, International News Editor, Light Reading
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