AlcaHuaweiLu? Not Gonna Happen

August 27th, 2009 by · 1 Comment

There’s a rumor going around that either Huawei or ZTE are preparing a bid for Alcatel-Lucent (NYSE:ALU, news, filings).  The argument is that both Chinese telecom equipment vendors have a lower cost structure, and would therefore have a better shot at making Alcatel-Lucent’s business profitable.  While it would certainly be a blockbuster deal, there’s just no way it’s going to happen.  

The main reason Huawei and ZTE have cost advantages is primarily due to lower labor costs.  The only way they could bring that advantage to Alcatel-Lucent is by moving everything overseas.  Anyone who thinks regulators in either France or the USA are going to roll over and watch that happen during a recession with unemployment skyrocketing is crazy.

If Huawei or ZTE promised not to do that, however, I think they would have a great deal of trouble operating the business as there is a much bigger culture gap between Chinese and Western corporations than most people realize.   I have some first hand experience in the matter, having lived in China for a good fraction of the last few years.  You think Daimler Benz and Chrysler had communication problems?  You ain’t seen nothing yet.

And if that weren’t enough, there’s the national security aspect.  Alcatel-Lucent has a presence deep in the defense infrastructures of both North America and Europe, and handing the keys to Beijing is certain to raise all sorts of red flags.   So many in fact, that China itself might stop the vendors from making an unnecessary international spectacle out of the inevitable refusal.

Frankly, this rumor seems like one built by traders, of traders, and for traders.  That it doesn’t make any sense is basically irrelevant, they’re just stirring up the pot.  There’s been a lot of that lately, it’s almost as if a faction of Wall Street is trying to bring on some irrational exuberance via sheer force of will and break the recession once and for all.

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Categories: Mergers and Acquisitions · Telecom Equipment

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1 Comment, Add Yours!

  • There has been heightened garbage rumors and nonsense in the market for the past month. Not a good sign.

    “this rumor seems like one built by traders, of traders, and for traders.”


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