Alcatel-Lucent: As CDMA declines, W-CDMA steps up

Cost savings on merged UMTS portfolio show dividends, offsetting shrinking CDMA market

Alcatel-Lucent doubled its sales in Wideband CDMA in the first quarter as the synergies of Alcatel and Lucent Technologies' UMTS portfolios begin to emerge, company officials said today. However, shrinking value of the dollar and more declines in the former Lucent’s mainstay CDMA business offset those sales gains, resulting in a 6.5% decline in wireless network sales year-over-year.

CEO Patricia Russo predicted that growth for Alcatel-Lucent would be flat, but that the improvements in the W-CDMA unit would continue. The company would fully integrate its separate 3G product lines later this year, giving it a single GSM and W-CDMA platform to support and significantly lowering its R&D costs. Russo added that as the industry transitions to 4G deployments, Alcatel-Lucent is well positioned to sell both LTE and WiMAX technologies as well as hybrid solutions that mix GSM and WiMAX as well as CDMA and Long Term Evolution.

“We’re poised to capture a 4G footprint by leveraging our existing customer relationships as well as our expertise in some of the key technology areas that are relevant to 4G, spanning both LTE and WiMAX,” she said.

While Russo didn’t elaborate on CDMA division’s performance, she said that the first quarter of 2007 was an exceptional strong CDMA quarter for the vendor. Most of Alcatel-Lucent’s largest CDMA customers have now finished building the majority or their EV-DO networks, which has kept the CDMA business strong for the last several years. Many of them have also completed their software upgrades to EV-DO Revision A, which adds more capacity and high-speed uplink capabilities to the network. Alcatel-Lucent’s two biggest North American customers are also moving away from the CDMA evolutionary path for 4G, Sprint picking WiMAX and Verizon Wireless picking LTE. While Alcatel-Lucent failed to win a piece of the Sprint contract, it was named one of the trial vendors for Verizon’s LTE network.

In the first quarter, Alcatel-Lucent entered into a joint development deal with NEC for LTE, which may make Alcatel-Lucent a key player in what is expected to be the first LTE deployment, NTT DoCoMo’s. The customer has officially named only two vendors, Ericsson and Nokia Siemens Networks, but it has been conducting trials with NEC.

Russo said Alcatel-Lucent’s GSM business is growing despite the overall market shrinking. It deployed equipment in several network expansions in China, Africa and the Middle East. While it didn’t name any specific customer wins on UMTS, Russo said several existing customers have been ramping up their build-outs.

On the wireline side, Alcatel-Lucent saw an 8% fall off in year-over-year ADSL ports, but its GPON fiber business is growing as Verizon, AT&T and international customers continue to expand their networks. Optical networking also saw a boost, especially in the submarine cable business. While new customers may not be popping up, Alcatel-Lucent’s current customers are starting to expand capacity in their networks as broadband services start to tax existing resources, Russo said.

“We continue to see new demand driven by new subscribers, more broadband deployments, and the video and data traffic resulting from increased communications, increased sharing, increased peer-to-peer and the like,” she said. “As expected that’s bringing demand for network capacity increases, especially in the data and optical side for both fixed and mobile networks.”