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Wednesday, July 26, 2006

Lucent/Alcatel Looks Like Loser


Today's earnings from Lucent seem to make the Alcatel statements that the purchase of the US equipment maker will add to its earnings look silly.

Lucent earned a paltry $79 million down from $372 million in the quarter a year ago. Cash and marketable securities dropped $272 million. Even revenue dropped from $2.34 billion in the quarter last year to $2.05 billion in the most recent quarter. Gross margin fell from 45% to 41%.

Despite the fact that the merger has been approved by regulatory agencies, it now looks downright stupid. Lucent's stock has fallen from $3.49 in April to $2. The stock will be lucky to hold that level today.

To make matters worse, Alcatel's tock has been pulled down by Lucents. The shares of the two companies now trade virtually in tandem. Alcatel's shares were above $16 in May and now trade at below $11, very near a 52-week low.

There may be no undoing the deal, but the management of the combined company has dug itself a hole with Wall St. that may take years to exit.

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

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