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Technology Stocks : Alcatel (ALA) and France -- Ignore unavailable to you. Want to Upgrade?

To: zbyslaw owczarczyk who wrote (3524)	7/9/2001 2:43:28 AM
From: pat mudge	Respond to of 3891

Did you see the news about ALA and Thomson Multimedia? totaltele.com Europe: Sense and sensibility 01 July 2001 Alcatel has surprised the market with a decision to swap its dsl modem business for shares in Thomson Multimedia. Emma McClune asks if it is the result of panic about residential dsl growth rates or a clever long term strategy. Cut losses, tie up and shore up. That was the message of last month's (June) surprise deal in which European powerhouse Alcatel exchanged its dsl modem business for an increased stake in French consumer electronics producer Thomson Multimedia. Exchange is the important word here. At a time when cash-strapped companies are flogging what they can for cash, Alcatel has made the strategic decision to swap its ambitions in the home networking market for strategic leverage within a multimedia alliance. Analysts admit the deal caught them by surprise. Just weeks ago, Alcatel was presenting plans to turn its dsl modems into over-the-counter consumer boxes, entering the home hub rink alongside such heavyweights as Microsoft, Sony and Cisco. Not to mention peers from the telecoms world including Orange, Ericsson and Nokia. The business appeared to be flourishing. The market growth expectation for dsl modems lies between 50 to 80 per cent over the next two years, and Alcatel has a 28 per cent market share. Furthermore, dsl modem profitability is at around 6 per cent, say the experts, not bad for an emerging technology. Frankly, a new gadget with any level of profitability is good news these days. Perhaps the hope is that the deal with Thomson Multimedia will make long-term strategic sense. Alcatel, like just about everyone else in the business, is divesting itself of non-core activities though some are surprised that doesn't include dsl modems. Or is it a recent spate of profit warnings led by companies like directv which indicate that subscriber growth for dsl modems will be lower over the next few months than expected? Either way, and with investors breathing down Alcatel's neck for strong end of year results, it has decided to stick to what it thinks it knows best. The deal should strengthen Alcatel's relationship with the emerging leader of the US multimedia market and draw it closer to the bosom of Thomson Multimedia's diverse team of strategic partners. Predictions are that the complexities surrounding the regulation of a cross-over market such as multimedia could produce a monster monopoly, or at the very least an oligopoly, with a single multi-platform club of alliances covering the convergence of voice, data and video technologies. Hence one interesting consequence of this deal is that it has caused analysts to look closer at Thomson Multimedia to investigate suspicions that the future of global digital consumer products might actually be French. In exchange for its dsl modem business, Alcatel upped its stake in Thomson Multimedia from 6.4 per cent to 9.6 per cent, an all-stock deal worth around $390 million. That makes Alcatel one of the largest private shareholders in an entity with several roughly 5 per cent stakeholders including NEC, Directv, Carlton TV and Microsoft. Employees hold a further 4.6 per cent, and 30 per cent is freely available. To date, Thomson Multimedia claims to be the global market leader in home telephony, digital set-top boxes and large and very-large tubes, the glass tubes found at the back of television sets. And it certainly is one of the strongest leaders in the US market. Not bad for a company which teetered on the brink of bankruptcy in 1996 when the French state, the major shareholder, attempted to sell the company to the Koreans for the symbolic price of a single French franc. For European operators looking to enter the home-hub space, tying up with an international co-operative of multi-media entities is an obvious step right now. Only Germany and France have made any clear headway with local loop unbundling and a comprehensive pan-European broadband rollout isn't likely to happen anytime soon. Those with an eye to entering the home networking market could do worse than green-housing their products in a market with denser broadband penetration and keener appetite for digital consumer products. Just days after the Alcatel announcement, Thomson Multimedia unveiled a three-way alliance with Directv and Microsoft to develop a direct broadcast, satellite dbs television platform that will integrate Directv programming with interactive television, digital video recording and internet access in one consumer package. With Alcatel's dsl modem business to play with, the question now is how long will it take Thomson Multimedia to incorporate these modems into television sets, using its array of partnerships. Rumour has it that Alcatel may also be willing to sell its mobile handset manufacturing business for further shares on Thomson stakes. It begs the question of how long it is going to take other telecom entities to have the same idea of tying up multimedia ambitions with an alliance flagship.