“Currently, the only way to provide signals to consumers on the ground is to use decades old cell towers. Not only are those towers old and decrepit, they are ugly, inefficient and expensive to maintain. Yet this problem is not insolvable. Innovation can come to the rescue yet again. I have found the one company on the planet that not only knows technological infrastructure change is necessary, it has a plan that will revolutionize the communication industry.
“Over the next couple years, Alcatel-Lucent (ALU) will change the way communication towers are used. The company is developing a box that will bring these cell towers into the 21st century. The device Alcatel Lucent invented is called LightRadio, and this piece of equipment is used in combination with current cell towers to help expand speed and capacity.
“The problem with modern cell towers, aside from the severe cost to keep them, is that they are wasteful. Today’s cell tower was designed to send signals in all directions and at all times of the day. But most of this goes unused by the consumer. Think of this wasted signal like a hotel room or an airplane seat that goes empty—once the inventory is gone there’s no getting it back. Yet the cost to make that inventory available in the first place remains.
“That’s like these cell towers. They cost a lot of money to put up, but most of what they produce just vanishes into thin air, never to be used, recouped, or paid for by consumers. Alcatel-Lucent plans on changing that with LightRadio.
“Nearly half of the power used at the cell tower base station is lost as it travels up to the antennae. Also, the current system cannot handle multiple networks such as 2G, 3G and 4G signals. This means that each network needs its own antennae. The net result of these implementation errors is a tower that is costly and unproductive. But the LightRadio device alleviates these issues.
“When engineering LightRadio, the designers stripped out the heavy and inefficient power equipment that controls modern cell towers. Instead, they placed them into a centralized location—this little device. The small size cuts down power consumption (and costs) and allows LightRadio to be placed anywhere. Additionally, the LightRadio device can be accessed remotely in order to maximize the device’s output.
“LightRadio is a cube that is no bigger than your fist, but it will save the telecommunications industry millions, maybe even billions, in the very near future. The LightRadio can be accessed virtually and is then able to direct signals in areas of high usage. For example, a cube could be placed at a concert where a large audience will only temporarily be present. Additionally, the signal can be focused, meaning LightRadio could be placed at the top of a building overlooking a busy portion of highway, and increase connectivity during peak commute hours.
“Goldman Sachs recently upgraded the French telecommunications company’s stock to Buy from Neutral, arguing that ‘profits from structurally- attractive new businesses are overtaking losses from legacy units.’ Goldman’s price target implies investors that buy the stock now could capture huge upside. Of course by ‘new business,’ Goldman Sachs is clearly hinting at LightRadio. Sprint will begin testing the LightRadio in September, and Alcatel-Lucent will begin mass production next year. Between its greater efficiency sending signals and power savings, LightRadio could be the future of Alcatel-Lucent and America’s communication industry.
“Even without LightRadio, Alcatel-Lucent is growing sales. Its network segment, which competes with Cisco, has grown revenues substantially over the past two years. Within the networking segment, we can see wireless has experienced the strongest relative revenue growth, and represents 25% of sales. And that growth will continue into the future and the higher margin business of IP and wireless will also become a greater component of total revenue.
“Analysts agree and have raised their financial estimates this year. They expect Alcatel-Lucent to earn $0.25 EPS this year, up from a loss of $0.09 last year. Next year, analysts expect EPS to double to $0.45. Revenues are expected to expand 12% this year to $23.7 billion and increase 6% to $24.8 billion in 2012. And I believe, that based on those estimates, shares will trade up to $10 in a year.
“In the near term, the stock carries a mild degree of uncertainty. Shares have risen from $3 to $5.50 in less than a year, and Alcatel-Lucent remains a net income negative company. But already the financials are turning around, and with LightRadio expectations ‘under the radar’ of most investors, the upside for shares is still tremendous.”
Ian Wyatt, Top Stock Insights, 4/12/11
