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Friday, August 18, 2006

Lucent And Alcatel See The Finish Line

Stocks: (LU)(NT)(ALA)(SI)(NOK)(ERICY)

The Wall Street Journal wrote today the some analysts are worried about how well the Alcatel merger with Lucent will work. Lucent's pension liabilities were one of the causes for concern.

While the stocks in the companies have dropped since the merger was announced. Lucent's stock has moved from just above $2 to $2.3o since early August. And, Alacatel's has moved from $11 to $11.32 over the same period. Both stocks have handily outperformed Nortel over the last six months although all three have fallen during that period.

The WSJ speculation is interesting, but its does not put emphasis on the survival aspect of the merger. As the telco equipment business becomes more competitive, consolidation has begun in earnest. Nokia and Siemens have created a joint venture that is being valued at between $20 billion and $30 billion. The JV will cut 15,000 jobs and combine the customer bases and technologies of the two companies.

There has also been speculation that Motorola might buy Nortel to form another, more efficient supplier of telecom equipment.

Supplying the world's big telephone companies has become a difficult business. Margins has been squeezed as the cruel calculus of larger, merged telecom companies beating on suppliers has become the market rule. Lucent's shares are down from $8 in early 2001 to $2.27. Nortel's shares have dropped from over $8 to $2.06 during the same period.

A merged Alacatel/Lucent has some chance to compete. With Motorola, Nokia, Siemens and Ericsson in the game, at least that gives them some hope.

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

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