Alcatel-Lucent ( ALU) shares tumbled Tuesday as investors and analysts isolated the cause for a big sales miss: Lucent.
In its first quarter as a combined company, the Paris-based telecom networking giant shattered Wall Street's expectations by warning of a 10% sales shortfall and the need for deeper-than-expected staff cuts. Analysts were quick to identify Lucent, and specifically its U.S. wireless and conventional network equipment sales, as the source of the stunning weakness. "Lucent's business appears to be the primary factor in the fourth quarter miss," UBS analyst Nikos Theodosopolous wrote in a note Tuesday. Bad timing and significant product overlap seem to have delivered the most punishment in the quarter ended in December. U.S. telcos trimmed spending late last year as merger plans were completed. With the AT&T ( T) and BellSouth hookup pending, orders dried up, and the cutbacks were felt across the sector as highlighted by recent results from Tellabs ( TLAB) and Adtran ( ADTN). Even wireless, which has been a strong performance enhancer in prior quarters, showed signs of weakness last quarter. Investments in wireless network upgrades also slowed in the U.S., cutting into Lucent's CDMA sales and Alcatel's third-generation, or 3G, push, say analysts. But perhaps even more unnerving is the apparent lack of synergies in certain product areas where Lucent gear competes head on with Alcatel equipment.
Even though AT&T tried a last-minute bribe of promising 5,000 new U.S. jobs to help gain support for the deal, the Justice Department filed a complaint to fight the combination of the nation's No. 2 and No. 4 wireless carriers.