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Alcatel Lucent Jumps on Turnaround Plans

Stocks in this article: ALU

NEW YORK ( TheStreet) - Alcatel Lucent SA ( ALU) was jumping after CEO Michel Combes made clear his attention to sell assets and cut costs to spearhead the French telecommunication company's turnaround.

Alcatel Lucent, the world's largest supplier of telecommunications network equipment, was climbing 5.4% to $1.97 by mid-day on Wednesday.

Combes, 51, hopes to sell $1.3 billion of assets and cut expenses another $1.3 billion, the company said in a statement. Alcatel Lucent is betting that new cash flow will allow it to specialize in IP networking and mobile and fixed high speed broadband rather than being a telecom jack-of-all-trades.

At a strategic review, Combes established new goals for 2015. The French telecom equipment firm plans to focus on research and development pertaining to their IP routing, optical and software platforms and increasing sales. "We view the turnaround plan as credible and more radical than previous plans," said Deutsche Bank in an investor report. The company is expected to be able to achieve these goals in about 2 years.

However, others are skeptical. Jefferies analysts were impressed by the conviction shown by Combes but held Acatel's rating at underperform. The note released Wednesday morning attributed concern to lower EVDO Rev A / HSPA+ software sales and balance sheet risk in the intermediate and long term. Jefferies are skeptical that cash generation focus, rather than pursuing growth opportunities, will lead to profitability.

Analysts agree Acatel Lucent's turnaround depends on this strategy's implementation. With new cash flow and costs cuts to occur, restructuring is necessary. Discussions with unions concerning possible job losses could delay the process.

Alcatel Lucent is seeking to hire a COO as their CFO Paul Tufano is set to leave.

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