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Alcatel Serges on Triple Play

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  • Alcatel Serges on Triple Play

    Alcatel Serges on Triple Play
    By Ray Le Maistre

    Unstrung.com
    07.28.05

    Alcatel (NYSE: ALA - message board; Paris: CGEP:PA) delivered better
    than expected second-quarter numbers this morning, with CEO Serge
    Tchuruk saying that the second half of the year was shaping up to be
    even better as revenues from triple-play deployments help the vendor's
    wireline division reclaim some lost ground (see Alcatel Up in Q2).

    Revenues of [email protected] billion (US$3.8 billion) were "way above forecast,"
    said Tchuruk, and the earnings per share of $0.17 exceeded analyst
    expectations of $0.15. Those numbers, increased guidance for the year
    -- annual revenue growth of between 5 and 8 percent, instead of the low
    single digits -- and bullish talk about prospects for the second half,
    all helped to send the vendor's share price up by [email protected], 5 percent,
    to [email protected] ($12.31) on the Paris bourse.

    And analysts are positive, too. Richard Windsor at Nomura Holdings Inc.
    says he has "little difficulty in keeping Alcatel as our favourite
    stock in the sector." In a research note issued today he stated this
    was "a solid set of results which, combined with the increase in
    guidance, should be well received by the market."

    In amongst the welter of statistics and numbers were some interesting
    snippets about broadband spending trends, Alcatel's ongoing success in
    the mobile infrastructure market, and its growing presence in the IP
    routing market with its 7750 service router, courtesy of the Timetra
    acquisition (see Alcatel & TiMetra Seal the Deal).

    And, of course, there was the usual tour de force from Tchuruk,
    who loves to comment on every question asked, whether it's asked of
    him or not. And he likes to tell it like it is. When asked about the
    potential for M&A among the sector's major equipment firms he stated,
    "Everyone wants to see consolidation, but everyone wants someone else
    to pay for cleaning up the industry and having the pain of a major
    acquisition. I'm not pursuing a massive consolidation for Alcatel as a
    way forward," he added, putting to rest any lingering questions about
    a merger with Lucent Technologies Inc. (NYSE: LU - message board).

    Fixed-line recovery in H2

    While the CEO was the main speaker on today's call, Mike Quigley,
    the vendor's president and COO, and the perceived heir to Tchuruk's
    throne, was given far more airtime than usual, and he took on many
    of the questions related to the fixed-line equipment division, which
    saw its revenues fall to [email protected] billion ($1.5 billion) compared with
    [email protected] billion ($1.6 billion) a year earlier.

    The dip had been expected, said Tchuruk, but a recovery is expected
    in the second half of the year as Alcatel "sees the benefits of the
    wireline upgrades" being undertaken by large carriers such as SBC
    Communications Inc. (NYSE: SBC - message board), BellSouth Corp. (NYSE:
    BLS - message board), and China Telecommunications Corp. (NYSE: CHA -
    message board).

    Quigley noted that deployments of next-generation access equipment
    based on triple-play service strategies had "accelerated in the
    first half of the year and will gather momentum in the second half
    of the year. We hardly have a wireline customer that isn't talking
    about triple play, and we see IMS architectures being built on top
    of network infrastructures built for video."

    He added: "It's not just about access equipment. This is about optical
    equipment, too, and one reason we acquired Native Networks was because
    we wanted Ethernet capabilities in our OMSN [optical multiservice node]
    range." (See Alcatel to Buy Native for $55M.)

    Both Quigley and Tchuruk talked up the company's growing IP router
    business. "The 7750 is very popular, and we now have more than 60
    references, including SBC, China Telecom, France Telecom, and BT's
    21CN. The revenues from IP routing will be significant this year,
    about ~@200 million [$243 million)," said the CEO, noting that BT's
    21CN project wasn't yet delivering any revenues.

    Quigley added that Alcatel had "shipped 200 7750 routers to France
    Telecom in the first half of the year," which were being used as the
    IP edge routers for the carrier's IPTV service rollout.

    Tchuruk said this deal was won late in 2004 but that FT, which one
    analyst on the call described as a "Cisco shop," hadn't wanted it
    publicized, and that Alcatel was the only IP edge router vendor
    involved in the rollout. "We are the only one -- there is no Cisco,"
    the CEO intoned.

    In the DSLAM market, Quigley said the latest quarter had been slow
    in North America, but, despite that, the company had shipped a record
    5.9 million lines worldwide in the second quarter. "We expect to see a
    pickup in DSL sales in North America in the second half of the year,
    and the third quarter will be much stronger there in terms of net
    line additions."

    He said Alcatel was set to ship a total 22.5 million DSL lines in 2005,
    of which 3 million would be IP DSLAM lines. That would increase to
    an estimated 6 million IP DSLAM lines in 2006, about 20 percent of
    the total.

    And Quigley shot down the misconception that IP DSLAMS were cheaper
    than traditional ATM-based units. "There are continual price and cost
    reductions in the DSL market -- it's a very tough market and we're
    battling order by order. But while Ethernet-based DSLAMs provide a
    lot of benefits to carriers, they're not cheaper."

    Mobile: growth and NGN hopes

    While Alcatel's wireline business wilted in the second quarter, its
    mobile infrastructure division increased its revenues nearly 35 percent
    year-on-year to ~@958 million ($1.16 billion). Tchuruk said the sales
    showed ongoing demand for the company's hybrid 2G/3G infrastructure,
    with new contracts in Brazil, Nigeria, Russia, France, and China.

    The CEO was more excited about the future prospects for the technology
    gained from the Spatial Wireless acquisition (see Alcatel in M&A
    Frenzy). "The mobile NGN core has possibly even greater potential
    than wireline NGN. We have 20 trials, and two deals, of our IMS-based
    mobile NGN, and great expectations for this technology. The bottom
    line may be negative from this business at the moment because of the
    costs involved in working with customers, but we expect this will
    change by the end of this year and into 2006."


    - Ray Le Maistre, International News Editor, Light Reading
    (http://www.lightreading.com/)

    http://www.unstrung.com/document.asp?doc_id=78193&WT.svl=news3_5
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