Learn the Lesson of Alcatel-Lucent

 | Nov 23, 2012 | 9:07 AM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

alu

,

hpq

,

rimm

,

nok

,

s

,

t

We always forget about Alcatel-Lucent (ALU). Every time we think that this is the moment to buy Hewlett-Packard (HPQ) or Research in Motion (RIMM) or Nokia (NOK), we forget about the financial disaster that is right in our face.

I am reminded of this because right now Alcatel-Lucent is trying to arrange a lifeline loan from Goldman Sachs to help shore up its balance sheet and keep it alive, something that causes the stock to jump 8% today to 1.20 euros.

Lucent was a colossus that straddled the earth. It had the Bell Labs division of AT&T (T), the brains behind AT&T and all the switching and all the fiber and all the copper. It had the greatest installed base in the world and the best international brand name. Believe me, it could rival Cisco (CSCO)and show up Nortel every day of the week. You always knew it has the inside track on all of the big Verizon (VZ) and AT&T deals as those companies grew and grew and one of its former CEOs, Patricia Russo, showed me LTE in its infancy and explained how Lucent had the next-generation cellphone all to itself.

In short Lucent, at least the Lucent before it merged with Alcatel, seemed invincible. Yes, its previous CEO had inflated revenues, somewhat akin to what Hewlett-Packard accuses its Autonomy division of. But it was still winning tons of business globally after that and was considered the acknowledged leader in all wireless and wireline equipment.

Until it wasn't.

That was until Cisco passed it by in routers and switches, until the design of the cellphone itself became more important than the network, until the cloud emerged and storage farms and Internet highways, until innovation, much better mouse traps everywhere, passed it by.

It hung on. The merger with Alcatel was meant to make it so it could win as much business in Europe as it did here. But new technologies were liked there, too. The brand name? The finest brand name in the world, Bell Labs? It became like Kodak. The patents? They have millions of them. All of those Nobel Prize winners!

But the patents are for equipment that's been obviated years ago.

Now it is true that you could have been a buyer of Alcatel-Lucent all the way down. You may still be a buyer. There were so many reasons to do so, just as there are with Nokia or Research in Motion or Hewlett-Packard.

There's value all over the place.

But in the end once you have that vortex it is almost impossible to break out of it. Of the tech stocks that I follow that got into a tailspin, the only one that I have seen rescue itself in this era is Sprint (S), and that turned out to be a monumental effort that people are still betting against. Worse, unless you bought it at $2 or $3 or maybe $4 you lost money anyway!

One last thing. Throughout this period many thought Lucent and then Alcatel-Lucent had to make it because if the balance sheet. It always had a good balance sheet, always managed the cash well. So, there were no worries. That's what made me laugh about Alcatel-Lucent's frantic bid to get a lifeline from Goldman Sachs. In the end, the cash always goes, too.

Columnist Conversations

Keep an eye on Wayfair, which recently filed for its IPO. Killing it on pricing in home goods head/head with W...
Is this the biotech revolution or the biotech bust? View Small Cap Biotechs Like Never Before: Transparency is...
HLF is trading $51.05, up 3.2% with IV30™ ripping up 21.5%. The Symbol Summary is included below. Concl...
With just less than an hour til the close of trading the S&P 500 is trading nearly 4 points off of that 2,...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.