HP’s telecom play gives lifeline to Alcatel

Is Hewlett-Packard trying to become the next Cisco Systems?

That’s what it looks like recently, as HP has signed a massive alliance with telecom equipment giant Alcatel-Lucent.

The agreement is binding for 10 years and will have more than 1,000 Alcatel-Lucent employees transferring over to HP. Through a series of partnerships, the two companies will offer joint telecommunications and information technology solutions to customers worldwide. The companies each hope to pull in “multibillion euros in net revenues” over the life of the contract.

This creates something much like what Cisco is today: a multifaceted titan with deep expertise in networking technologies that can design, build and manage large networks – using its own hardware products.

HP looks like the dominant partner in this marriage, yet the alliance seems more important for Alcatel-Lucent. The pan-Atlantic telecom specialist is in debt, losing money and fighting for survival.

The huge and profitable HP, on the other hand, is dipping a toe into the telecom waters to see whether the temperature’s nice. If it’s not, no big deal. HP is a market leader in other fields, such as PC systems and IT services.

Alcatel should send you a thank-you note for the lifeline, HP.

Ask the Fool

Q: What are “same-store sales” numbers? – E.M., Telluride, Colo.

A: They reflect sales at stores open a year or more. Imagine that Sisyphus Transport Corp. (ticker: UPDWN) reports sales of $200 million in 2008 and $400 million in 2009. That looks great – 100 percent growth! But now assume that Sisyphus Transport had 10 stores open in 2008 and 20 open in 2009. If its same-store sales for 2009 came in at $200 million, then sales at its stores open for at least a year have been flat. That’s a big difference.

If you increase your number of stores, then of course your total sales will probably go up. Some retail chains might open many new units, but their average sales per store might be going down. Same-store numbers (also called “comps”) can help you see things clearly, comparing apples to apples.

Expansion can be good, but companies should be increasing sales at their existing stores, too. Sales growth solely through adding stores is unsustainable.

Q: What’s a derivative? – J.M., Paramus, N.J.

A: A derivative is a financial contract whose value is “derived” from another security, such as a stock, bond, commodity, currency or a market index such as the S&P 500 or the Wilshire 5000. The most common types of derivatives are options, futures and mortgage-backed securities. They’re sometimes used to “hedge” risk, such as when companies limit their exposure to losses from currency exchange-rate fluctuations or fuel-price volatility.

Derivatives can be very risky, such as when they’re used to amplify gains (and losses). Warren Buffett has called derivatives “time bombs” and “financial weapons of mass destruction,” and indeed, the recent market meltdown was partly fueled by them.

My dumbest investment

I bought 150 shares of Apple in January 1996 for $5,100 and sold six months later, for $7,300, netting a profit of about $2,200. Today those shares would be worth around $38,800. Golly, that’s a lot of money. When I bought Apple, it was simply because of people (analysts, co-workers, friends) speaking highly of it. No further analysis. I do not know why I sold, other than to take the profit. I did no analysis and was just happy to have made a profit. Oh well, live and learn. – A.G., Newhall, Calif.

The Fool responds: You wrote that note to us in 2006, A.G. If you’d hung on, those shares would be worth about $84,000 today, representing a 16-fold increase in the value of your original investment. It can be useful to take some time when buying a stock to jot down exactly why you’re buying it, and why you would sell it. As long as it’s healthy and growing and doesn’t seem wildly overpriced, consider hanging on. If you lose faith or find a more compelling investment, sell.