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

To: Steve Fancy who wrote (586)	4/12/1999 7:43:00 PM
From: Mike K	Read Replies (2) \| Respond to of 3891

From Worldlyinvestor.com Apr 12, 1999 Alcatel Looks to Regain Respect April 12, 1999 6:32 AM EDT By Lucy Weldon Special to worldlyinvestor.com Alcatel (quote, chart, profile) is finally winning back investor confidence after a disastrous fall in the company's stock price last year. The French telecom giant's stock reached its nadir in September last year when its share price in France took a hammering and fell a drastic 38% in one day triggered by a company profit warning. It is now trying to position itself as a world class player in the new technology revolution. Standing still is not an option for telecommunication providers like Alcatel. Its core business was built on the back of providing switching equipment for just voice traffic. Analysts now believe that the switching equipment market will shrink and that the arrival and rapid expansion of the Internet, the adoption of Internet protocol (IP) as the data-networking standard and the convergence of data and voice technology mean that conventional phone networks are fast becoming a thing of the past. Says Alcatel Asia-Pacific Director Alan Plenier, "In the past, voice and data networks and applications were separate and distinct. Today, technology innovations allow for convergence of voice, video and data." From what was mistakenly considered a niche market at one time, growth of data traffic is exponential. Predictions have been made that by 2003, data traffic volume in the world will be 23 times larger than voice traffic. Alcatel needs to capture a slice of the exploding data communications market and be at the vanguard of Internet protocol technology to support the convergence of voice and data networks. Doing Battle in the US US networking giants are the frontrunners for technology developments. But, European providers are catching up, entering the US battleground for both a share of the technology know-how and a share of the huge US market place. The US is the most important market for Alcatel as far as telecoms are concerned. Alcatel has made a number of important deals in the past year, all based in the US, totaling some $5 billion. These have included DSC, Xylan and two start-ups called Packet Engines and Assured Access Technology. These acquisitions are designed to improve its data networking product range. Whilst these acquisitions are by no means the biggest on the block, compared with the $20 billion spent by Lucent Technologies (quote, chart, profile) for Ascend Communications, they now give Alcatel the ticket to the technology game. They also mean that Alcatel is leapfrogging the competition with its targeted acquisitions, particularly the fast charging European herd of telecoms. Alcatel's Plenier believes that Asia will swiftly follow the US in moving away from the traditional use of voice to the increased use of data networks. He sees every aspect of the business environment impacted such as call centers, integrated directories, voice over the Internet, PC telephony and e-commerce. This should be where the Xylan acquisition comes into play as it is recognized as one of the top companies in corporate data networks. Plenier sees the Alcatel and Xylan fit as complementary. It positions Alcatel competitively to attack further the enterprise market worldwide with what the company describes as a "converged technology portfolio." What analysts will be watching for are the results of these acquisitions quickly translating into sales and new sources of income. Facing Up to the Past While the future looms large, legacies of the past do also. Alcatel has recently reported that it made $2.56 billion last year. At the same time, it announced it will cut 12 000 employees in the US and Europe (some 10% of its total workforce) by the end of 2000. While this buoyed investor confidence, analysts were still disappointed that its operating profit margins in its telecomm division were lower than targeted. However, the rough ride since last September might be over. Alcatel's ADR price is improving since its nosedive in September. It is slowly recovering some of the considerable ground lost and is trading around $23. This compares with its 52-week low of $16. The stock still has a long way to go before it reaches its 52-week high of $47, but many feel it is only a matter of time before it returns to those heights. Lucy Weldon is a journalist based in Kuala Lumpur, Malaysia. She is the author of Private Banking - a Global Perspective.