Friday, February 08, 2008

Alcatel Lucent Watch The Intangibles

Alcatel Lucent (ALU)reported 2007 results. The Board of Directors saw fit to cancel the 2007 dividend. 2007 was supposed to be a transition year. Patricia Russo speaks to a three year plan and wants the market to believe that they are on track. If they are supposed to be transitioning why did they wait till the last quarter to recognize some of the losses. You're first loss is usually your sweetest if done quickly.

Watch the intangibles and goodwill category. Consider this quote from the press release

"Due to the continuing decrease in the market value of Alcatel-Lucent's shares during the second half of 2007 and its revised outlook, the company has carried out an additional impairment test of goodwill in the fourth quarter of 2007. This test led to an impairment charge of EUR (2.52) billion in the quarter, mainly impacting the goodwill allocated to CDMA and IMS activities."

At this point I should disclose that I loathe and mistrust goodwill valuations. Neretheless with the goodwill and intangible valuations still at approximately 10 Billion Euro's the corporate book value is over invested in this category. (Well in excess of 50%) Watch for further writedowns in this category. Which will mean the three year plan is not working out.