Alcatel-Lucent's Quiet Rise (ALU)(NOK)(SI)(ERIC)(MOT)

When Alcatel and Lucent announced that they would merge, there seemed to be nothing but skeptics on Wall St. So, odd that the stock has gone from $11.75 on October 9 to $15.19 to open trading in the new year, an increase of 29%.

ALU did close its deal to buy Nortel’s radio access business for $320 million. But that was expected.

Citigroup actually put out research notes saying it preferred Ericsson’s shares to ALU and Nokia. That call seemed to drive ALU shares even higher. Moody’s downgraded the ALU bonds on execution risk from the merger.

There are rumors that ALU is being considered as a partner for the Sprint WiMax deployment in the US. But, that would hardly drive the shares up 29%.

In many ways, there are more reasons for the stock to be down. Save one. And, that is the most important. Alcatel-Lucent, through its merger, is now one of the few large suppliers of a broad array of equipment for the world’s largest telecoms. Competition has moved out of the market as two companies that could bid against each other have joined forces.

Ericsson is still a formidable player in the game. So is Motorola. The Nokia joint venture with Siemens could be, but bribery charges at Siemens have delayed that.

The rise in ALU shares is an admission by the markets that, in a market where scale matters and customers are large and complex, size matters. And, smaller companies will be pushed out of the way.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.