Alcatel-Lucent (NYSE: ALU) saw its share price tumble by nearly 11 percent Tuesday morning after it released preliminary unaudited fourth-quarter results that showed a dramatic drop in revenues compared with a year earlier. (See Alcatel-Lucent Reports Q4 Prelims.)

The giant vendor was only formed in late November 2006, so the preliminary fourth-quarter revenues of €3.87 billion (US$5 billion) and operating income of €120 million ($156 million) include Alcatel-only revenues for October and November, and joint Alcatel-Lucent revenues for December. (See Alcatel-Lucent Stays Tight-Lipped and Alcatel, Lucent Merge.)

But to put its performance into perspective, the company plans to provide adjusted financial results for a combined Alcatel and Lucent from January 1, 2006, so that recent and future financial periods can be compared like for like.

Using this pro forma reporting method, Alcatel-Lucent says it expects fourth-quarter revenues to be about €4.42 billion ($5.76 billion), down a whopping 16 percent from €5.25 billion ($6.84 billion) a year earlier. Pro forma fourth-quarter operating profit is expected to be about breakeven, compared with an operating profit of €570 million ($742 million) a year earlier.

For the full year 2006, Alcatel-Lucent expects to report pro forma revenues of €18.3 billion ($23.8 billion) and an operating profit of €1 billion ($1.3 billion), compared with €18.6 billion ($24.23 billion) and €1.4 billion ($1.8 billion), respectively, in 2005.

That news sent the vendor's share price down by €1.20, nearly 11 percent, to €9.75 on the Paris stock exchange.

In the vendor's prepared statement, CEO Pat Russo cites a number of factors that affected the fourth quarter -- integration issues, a "shift in spending from some of our large North American customers," and "heightened competition in the global wireless market."

In a research note issued this morning, analysts at Lehman Brothers noted that the capex stutter caused by the merger of AT&T Inc. (NYSE: T) and BellSouth Corp. (NYSE: BLS) and market share advances by Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK) in the mobile infrastructure markets were the main factors. (See FCC Welcomes 'Ma Bell' Back.)

With cost-cutting and product integration plans in motion, Russo adds that she's confident of growth in the "mid single digits" in 2007. Growth of 5 percent would deliver 2007 revenues of €19.2 billion ($25 billion).

The company has also "decided to take additional [cost cutting] actions" in 2007 to counter the pressures of a "highly competitive" market. Alcatel-Lucent now expects cost savings of €600 million ($782 million) this year, up from the original target of €400 million ($521 million).

When Alcatel and Lucent first announced their intention to merge, they stated their marriage would create $1.7 billion ($2.22 billion) in cost savings within three years of the deal closing, and that the total combined workforce would be reduced by about 10 percent, or 8,800 jobs. (See Alcatel, Lucent Seal Deal.)

A spokesman for the vendor says the additional €200 million ($261 million) savings now planned for 2007 are "on top of, and unrelated to" those planned post-merger cuts, though further precise details about the extra cuts were not made available.

Instead, Alcatel-Lucent would say only that: "These additional savings will entail actions that improve the productivity and efficiency of our businesses and operational processes, which include among other things, platform cost reductions as well as right-sizing our business in this continued highly competitive market environment." So the number of extra job cuts is not being revealed at present.

Some analysts have long believed the vendor would look to cut its staff numbers by more than 10 percent, with some believing that up to 13,000 jobs could be lost in the post-merger years. Prudential Equity Group LLC analyst Inder Singh noted back in September that reducing headcount by between 12,000 and 13,000 "would likely advance the timing of savings, leading to stronger earnings growth for 2008." (See Alcatel/Lucent Wait on W OK.)

The company is not saying how many staff have been cut to date.

Alcatel-Lucent will report its full fourth-quarter and full-year results on February 9.

— Ray Le Maistre, International News Editor, Light Reading