Alcatel-Lucent Joins the Concerning Earnings Trends With Peers (ALU, CSCO, JNPR)

Alcatel-Lucent (NYSE: ALU) is joining in the waves of selling seen in Cisco Systems Inc. (NASDAQ: CSCO) and even more recently in Juniper Networks, Inc. (NYSE: JNPR).  Cisco has been bashed even during its attempt to trim its bloated rank and file, and Juniper was just punished this week after confirming that it was also falling victim to the order cycle of communications providers.  The culprit is nothing other than poor earnings.  Early this Thursday came Alcatel-Lucent’s earnings report that took what little wind was left in the networking and telecom equipment-maker’s sails.

The biggest issue that U.S. investors face is this dual Euro and Dollar reporting now that the company is effectively French.  What is not arguable is whether the company beat estimates or missed estimates.  It was the latter.  Revenue was $5.6 billion after conversion.  Its profit came to 43 million Euros versus a loss of 184 million in the second quarter of 2011.

Revenue in North America accounts for about 40% of sales and the sequential change was a drop of 0.3% there.  What is interesting is that Alcatel-Lucent reiterated its full 2011 forecast and still believes that its turnaround can outpace its rivals in growth.  It sees its adjusted operating margin above 5% of sales this year.

CEO Ben Verwaayen has previously pledged to regain profitability by the end of 2011 as part of a 3-year turnaround plan.  The company’s goal is to still be cash flow positive for 2011 and the company is taking inventory reductions in the second half to deliver upon that goal.  The company also expects its U.S. sales to remain strong in the second half.

Of concern is a slowing economy along with a continued consolidation of telecom providers.  As the world’s providers get larger and larger, while becoming fewer in number, it creates a challenge for equipment-makers and service providers that live and die from telecom and communications providers.  Austerity measures from Western governments are no help in the either for these companies.

Alcatel-Lucent’s ADRs closed at $4.91 on Wednesday and the shares are indicated lower around $4.30 with more than 90 minutes until the New York opening bell.  What is amazing is that this is still the top networking equipment stock of 2011 as it closed out at $2.96 on December 31, 2010 and shares peaked at $6.63 on May 2, 2011.  We have now lost one-third of the value from the peak in May during this pullback but the shares are still up 45% so far in 2011 even after the pullback.

In Paris trading, Alcatel-Lucent shares have traded more than double the normal volume with over 47 million shares and the drop is 9.7% to 3.057 Euros after closing at 3.38 Euros on Wednesday.

JON C. OGG