March 28, 2006

Alcatel’s board of directors is planning to meet on Thursday to mull over details of the company’s merger with Lucent Technologies.

However, no final decision is expected to be made during the meeting, said Charlie Guyer, spokesman for Alcatel.

Guyer added that the proposed merger will only be one of the discussion topics at the meeting, though other topics on the agenda were not disclosed.

The proposed joining of Alcatel and Lucent has encouraged much speculation in equipment-vendor circles.

L.M. Ericsson isn’t commenting on a Reuters story based on a Times article that cites sources stating that Ericsson’s Chief Executive Officer Carl-Henric Svanberg unsuccessfully pitched the idea of Ericsson acquiring Lucent to Ericsson’s board of directors.

Analysts say Ericsson isn’t likely in the market for Lucent’s assets, but is instead interested in fixed-line and Internet Protocol technology.

Industry watchers have their sights locked on Cisco Systems Inc., Motorola Inc., Nokia Corp., Nortel Networks Ltd. and Siemens A.G. as the equipment-vendor market adjusts to consolidations among carriers. Rumors are especially swirling around scandal-ridden Nortel, with Siemens seen as the likeliest suitor.

Interestingly, analysts have not included Chinese vendors Huawei Technologies Co. Ltd. and ZTE Corp. in discussions about possible mergers.

Ovum’s Jean-Charles Doineau, service infrastructure practice leader, and Julien Grivolas, an Ovum analyst, describe these vendors as “persona non-grata” in U.S. markets.

They also note that while Alcatel has been under pressure from Asian competitors in developing markets, the proposed merger with Lucent would give Alcatel a foot on each side of the Atlantic, putting the combined company in a strong enough financial position to support new technology developments and to remain a long-term industry leader.

Financial analysts seem pretty much in favor of the Alcatel/Lucent merger, but point out that Alcatel’s market position puts the French vendor in a better position than Lucent at the bargaining table.

Ken Leon, director of telecommunications services at Standard & Poor Equity Research, wrote, “Lucent Technologies’ shares are up nearly 10 percent since last Friday, March 24th, on a potential merger of equals with Alcatel.

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We do not believe these developments change customers' markets.

We believe Lucent Technologies’ high concentrations of revenues from wireless and fixed-line telcos, like the pending merger of AT&T {Inc.] and BellSouth [Corp.], makes Lucent vulnerable to increased buyers’ pricing power.

With emerging IP-based open standards, we believe incumbent suppliers will also be exposed to more IT vendors and narrower margins. Priced near peers on P/E, but growing slower, we would sell Lucent Technologies shares.

“We are surprised to see Alcatel come to the table in a possible merger of equals with Lucent.

In our opinion, Alcatel is already a strong broadband supplier with the leading fixed telcos in North America, and we believe capex spending for 3G wireless is slowing down.

The big capex opportunity is the issuance of new 3G licenses in China, and we believe Alcatel has a strong historical relationship with this market.

Unlike Lucent, which is guiding for flat sales in fiscal year 2006 (September), we expect Alcatel to grow sales in the mid-single digits. Despite our concerns, we maintain a “Hold” on ALA ADSs,” Leon noted.

Activity around both companies’ stock remained calm during morning trading, with Lucent’s shares trading down 4 cents at $3.10 per share while Alcatel traded down 29 cents at $15.41 per share.

In other Lucent news, the company named David Hitchcock its new corporate controller, succeeding John Kritzmacher who stepped into the chief financial officer position in February.

As corporate controller, Lucent says Hitchcock will be responsible for the company’s global accounting operations, external reporting, internal controls compliance, financial planning and analysis and contract management. He will report to CFO Kritzmacher.

Since February 2005, Hitchcock has worked as business operations and finance vice president of Lucent Worldwide Services.

Hitchcock joined AT&T in 1983 and has worked in a variety of financial management positions at both AT&T and Lucent since then.

Source: RCR