ALU's NexGen Mobile Venture

Alcatel-Lucent (NYSE: ALU - News) entered into an agreement with China Mobile to jointly develop next generation mobile communications. As per the memorandum of understanding signed between the companies in Beijing  Alcatel-Lucent's powerful lightRadio technology will also be jointly devepled by Alcatel-Lucent and China Mobile.

China Mobile has largest number of subscribers in the world and leads in mobile networking techniques like radio access, IP, and optical technologies. The new research alliance between the two companies further strengthens the existing relationship between the two companies.

Alcatel-Lucent and China Mobile will jointly develop mobile network architectures based on China Mobile's Cloud-RAN and Alcatel-Lucent's lightRadio and advanced antennas technology. The companies will also search the evolution of core network structure on the basis of network virtualization and build up technologies and approaches for alternative energy use to achieve green ICT.

Telecommunications companies continue to be the largest group in terms of mergers and acquisitions, which has helped in ALU’s penetration as companies try to consolidate with a single vendor. There has been a trend of consolidating with one or two providers from the telecom industry to cut costs and simplify the purchasing process, and this has caused several mergers in this industry. The creation of a clear #2 behind Ericsson in the market should help to boost the competitiveness in the industry and provide Alcatel-Lucent solid positioning to improve its position over the long term.

With strengthening demand in some segments and geographical areas, we anticipate a strong sequential recovery in top line and operating income levels.

The combined Alcatel-Lucent continues to sort out its restructuring, which goes far beyond rationalizing the product line and consolidating its operations. While we believe management will do its best at consolidating the company and making the cuts necessary to survive, it may also have to contend with push-back from the French unions and the political fallout. Major competitors of Alcatel-Lucent are Cisco Systems, Inc. (NasdaqGS: CSCO - News) and LM Ericsson Telephone Co. (NasdaqGS: ERIC - News).

Based in Paris, Alcatel-Lucent is a diversified global manufacturer of telecom equipment with over 77,000 employees in 130 countries worldwide. Apart from being the world’s leading supplier of digital subscriber line (DSL) equipment, Alcatel-Lucent is among the leaders in telephone switching equipment, optical and data networking gear, mobile infrastructure, and communications software. The company has also been a big player in mobile handsets, fiber optic cable, and Internet routers.

We continue to maintain a Neutral rating on Alcatel-Lucent, with a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.