IP networking, ultra-broadband access and cloud technology giant Alcatel-Lucent ALU has secured an important contract from China Railway. To be particular, the contract requires the company to upgrade the existing network of rail lines in Beijing and Nanning Railway Bureaus for improving the performance of railway operators as well as enhancing customer safety.
Inside the Headlines
Per the agreement, the company will offer its optical transport technology that includes operational communications, signaling and video surveillance services on a converged network to improve communication services of the bureaus. In fact, this contract can be considered as part of Alcatel-Lucent’s ‘mission-critical railway operations’, which is designed such that railway operators can optimize their network flexibility and reduce operational costs without compromising on safety, security or reliability.
Beijing Railway Bureau plans to deploy the company’s latest DWDM optical solution, namely. 1830 Photonic Service Switch (“PSS”) on the Bureau’s third ring route. The 623 km long route connects the densely populated capital to other towns and cities. Alcatel-Lucent currently plans to deploy 10G-speed technology for boosting performance of the communication network, and believes that this will act as the precursor of future 100G services.
Similarly, the Nanning Railway Bureau plans to replace the currently deployed traditional SDH solution with Alcatel-Lucent’s advanced multi-service switching. The Bureau plans to upgrade the 200 km communication link between the populous cities of Guilin and Liuzhou, so as to maximize performance potential and minimize operational costs. Management is bullish that these developments will lay the foundation for highly advanced interoperation with mobile ultra-broadband networks in the future.
Bottom Line
Alcatel-Lucent’s ‘mission-critical railway operations’ reflects its commitment toward developing higher-bandwidth intelligent rail communications that will pave the way for advanced next-generation infrastructure. The Chinese government’s determination to prepare the environment for a smooth network evolution is clearly manifested in its decision to work with Alcatel-Lucent, as railway forms the backbone of communication in China.
We believe the latest contract will likely be a key growth driver for the company’s Core Networking segment. For the first quarter of 2015, revenues from this segment increased 7% year over year to €1,450 million ($1636 million), driven by sales improvement in all three sub-segments, IP Routing (6%), IP Transport (8%) and IP Platforms (7%) (read more: Alcatel-Lucent (ALU) Q1 Loss Narrows, Revenues Up Y/Y). Moreover, the Chinese market remains an integral contributor toward Alcatel-Lucent’s revenue stream. Hence, strengthening of foothold in China is definitely good news for the company.
Also, Alcatel-Lucent’s successful completion of the current contract will likely attract the remaining Bureaus in Chinese Railway to avail its services as well, thereby unlocking more opportunities in the future.
Alcatel-Lucent currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include NICE Systems Ltd. NICE, KVH Industries Inc. KVHI and Gigamon Inc. GIMO, all three sporting a Zacks Rank #1 (Strong Buy).
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