ALU

ALU fell from $6.50 to $1.00 in Nov. 2012 and rises to over $3 in 2013. I read two similar articles on ALU and Cisco from Wall Street Journal. I predict it will lose more than half of its peak in 2013 by the end of 2014.

The bad

- The company is not recovering esp. with the global recession that I expect to continue with Obama's policy and the EU crisis.

- It could bankrupt if they cannot service their long-term debts (about 2 B) that are larger than their entire market cap.

- It should not be the management as the stupidest fools cannot make it that worst. However, they have to lay off more than the announced to save some cash.

- The problem is China, namely Huawei. Chinese engineers and researchers in Huawei have a fraction of this compensation.

China is a major market for Huawei. When it becomes a public company, it would add wings to its already strong body; a public corporation will attract professionals and leaders. China's huge market will be a good customer base for Huawei.

It reminded me of one apparel stock I owned. It could not compete with low-wage country even before lifting the embargo to China. When the management did not do anything positive, it will die even the chance for ALU is slim.

The good

- Cisco may buy it with a combination of stock and cash and it is better than giving dividends (that has raised the stock price and great for its investors).

Cisco does not have the state-of-the-art technologies that ALU, Huawei and Ericson have. It will be a strategic buy but 2B plus the hefty debt is not too easy to swallow. However, they can sell many of AUL’s other products / patents that do not have synergy with Cisco.

- When ALU is broken down into pieces, it is worth at least four times its market cap (two times when you include the debts). It has more patents than most companies in the world.

- EU intervention with US's help.
EU is a mess now and I do not think they can bail ALU out. EU and the USA will encourage local companies and government to buy ALU's products and stop Huawei.

Cisco is successful in doing so arguing with security reason. It is not a valid reason as some of the internet traffic has been routed to Huawei's products already and they will expect China to strike back for the same reason.

- Need a partner and an investor.

As of 11/2013, I do not want to invest in French companies for the following reasons:

·         EU is still a mess. They depend on selling goods between the EU countries.

·         You will incur some fees: A one-time fee of about $27 plus a 0,20% transaction tax. My estimate.

·         They have 12 weeks of vacation. Can they compete in the global market without selling to EU?

·         Their unions are too strong.