Nortel And Alcatel-Lucent: Dying Telecom Suppliers

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Wall St. would think that providing enterprise solutions and infrastructure to the world’s largest telecom suppliers would be a good business. Nortel (NT) and Alcatel-Lucent (ALU) appear to have proved that wrong. ALU shares are down 25% this year and NT is off about 35%.

Great Caesar’s Ghost!

One of the things that has happened to both companies is Cisco (CSCO). The Armada of businesses that CSCO has put together in the network equipment business is spectacular and it has moved nicely in the voice and video over IP as well.  Nortel is also probably up against price pressure from CSCO, ALU, Ericsson and Nokia/Siemens. NT revenue is stuck around $11 billion and on that, it barely breaks even.

Alcatel-Lucent is more pathetic. The two companies have pushed the idea that merging the American and French companies would create economies of scale, a larger sales force, and a broader array of products. Instead, the company is having trouble sorting out overlapping offerings and integrating the two operations. Management may be able to fix this, but the process has taken too long and has caused a number of investors to hit the exits.

NT and ALU may be able to get some customers back to prove they are still relevant suppliers, but investors are likely to stay away much longer.

Douglas A. McIntyre