More Boo-Hoo From AlcaLu

The sob story of embattled telecom equipment provider Alcatel-Lucent (NYSE: ALU) seems to have no ending in sight. Only weeks after issuing its third profit warning this year, rumors are circulating that the wireless equipment vendor may be getting the cold shoulder from customer AT&T (NYSE: T).

Before joining Alcatel in a merger, Lucent in 2004 won a $700 million portion of a $2 billion infrastructure supply deal to AT&T, which also had Ericsson (Nasdaq: ERIC) and Siemens (NYSE: SI) contributing their products. Now, the Financial Times is reporting, AT&T may be shifting a larger portion of the contract to Ericsson.

Alcatel-Lucent quickly fired off a statement claiming that the company continues to be a "critical W-CDMA supplier to AT&T" and that its market share has remained relatively stable. While it may be true that AlcaLu is holding up as a supplier of next-generation network equipment around the world, the repeated profit warnings and rumors highlight a merger that has gone in an undesirable direction.

Other megamergers in the wireless world have had similar difficulty: Nokia 's (NYSE: NOK) and Siemens' infrastructure partnership earned raspberries from Siemens' new CEO Peter Loescher, who flatly stated, "we are absolutely not satisfied with NSN [Nokia Siemens Networks]." Service provider Sprint Nextel (NYSE: S) has been under a cloud of lackluster results following its paring of Sprint and Nextel in 2004, as well.

Yet while Sprint Nextel CEO Gary Forsee is reportedly on the way out the door for his performance with the merger, Alcatel-Lucent CEO Patricia Russo got a vote of confidence from AlcaLu's board only a few days before rumors of the AT&T shortfall broke. While the board stated that it was "clearly disappointed" in the lowered outlook issued in mid-September, it reiterated its support of management and the direction the company is heading.

Investors -- myself included -- haven't been too happy with the direction of AlcaLu, however. The company's shares have shed more than 30% since the beginning of this year, even in the midst of slashing jobs and cutting expenses. While the board of directors may be maintaining patience, other investors are not as tolerant of continued stumbles. I don't see beaten-down AlcaLu in the turnaround category yet.

© 2007 Universal Press Syndicate.