The stock of Lucent Technologies Inc. (NYSE:LU) needs a lot of love. This used to be everyone's favourite on Wall Street, but now everyone has turned their backs on it. In late 1999, the stock was worth almost $80. Like many other stocks in the communications sector, it has been under a lot of pressure in recent years due to slow revenue growth and low profits.
Lucent has also been sued more than a few times. Even though the communications industry is getting better, it is still hard to do business in the area. There is a lot of competition, price pressure is getting worse, and margins are low.
That is the way things are in the communications sector, which is still in limbo because of the current situation. So, what should Lucent do? Shareholders are no longer confident in Patricia F. Russo's ability to turn the company around and make it a star again.
Down 96% from its high in late 1999, investors who bought at that level or even lower are probably never going to get back what they lost. Lucent will never be worth more than a capital loss for people who bought it when the prices were higher.
The company makes money and its forward price-earnings multiple is reasonable, but the stock's upside may be limited because growth is expected to be slow.
Given that the outlook for the communications industry isn't clear, Lucent is trying to get a big hug from France-based rival Alcatel SA (NYSE/ALA), which is also in trouble.
After Alcatel turned them down in 2001, Lucent hopes that this second try will be met with hugs and kisses, which is something French people love to do.
Alcatel is looking into the possibility of a merger with Lucent, but it is in a much better position than Lucent. In other words, Lucent has a bigger need for Alcatel.
But if Alcatel merged with Lucent, the company could get more attention and an already-established network in the United States.
If the deal goes through, it could be the first of many as struggling telecom companies try to find ways to cut costs and compete better.
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