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Alcatel-Lucent's Q4 Inheritance

Ray Le Maistre
2/7/2013
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Alcatel-Lucent reported its fourth-quarter and full-year 2012 financials early Thursday, but the numbers were always going to be overshadowed by the confirmation that Ben Verwaayen has relinquished his role as CEO and will hand it over to a successor in the coming months. (See Verwaayen Quits as Alcatel-Lucent CEO and AlcaLu Reports Q4 Loss of €1.37B.) Verwaayen will leave just as the storm clouds part slightly for the vendor, which looked in dire trouble only six months ago. Its financial situation has stabilized in recent months, aided by the access to fresh capital that followed the announcement of a corporate reorganization, setting up 2013 as a year in which AlcaLu might redeem itself and retain Tier 1 vendor status. (See Euronews: AlcaLu Gains on Credit Boost and Alcatel-Lucent Sharpens Its Focus.) So, what will the new CEO be inheriting? The fourth quarter provided a few reasons for optimism for the company, although, as usual, the main positives came from the IP division, which reported record quarterly sales of €574 million (US$770 million). It's probably not an exaggeration to suggest that without the IP unit, AlcaLu would have sunk by now. Total fourth-quarter revenues reached almost €4.1 billion ($5.5 billion), up 13.8 sequentially but down 1.3 percent from a year ago, while operating income (before one-time costs) was €66 million ($88.5 million, better than expected), about two thirds down on a year ago but much improved compared with the €181 million ($243 million) operating loss recorded in the third quarter. Gross margin was 30.4 percent, better than the 27.9 percent recorded in the third quarter but down from 34.4 percent a year ago. By comparison, Ericsson AB and Nokia Siemens Networks reported gross margin levels of 31.1 percent and 36 percent respectively in the fourth quarter. The fourth-quarter net loss, which includes restructuring, asset impairment and other one-time charges, was €1.37 billion ($1.84 billion). On the face of it there seems little here to stoke any optimism: Fourth-quarter financials are historically better than the third quarter's, so sequential improvements are to be expected. But there were some rays of hope. In addition to the stellar performance of the IP division, the important wireless unit (which includes 4G infrastructure) also reported improved sales on a sequential and year-on-year basis, while the same feat was achieved by the Software, Services & Solutions division, which generated revenues of €1.39 billion ($1.86 billion). That total included €240 million ($322 million) from the Network Applications business, up nearly 53 percent year-on-year thanks for subscriber data management and IMS-based 4G voice systems deployments at LTE operators in North America (though that suggests it is more of a one-off bump rather than the start of a trend). Encouragingly, revenues from North America hit €1.6 billion ($2.14 billion), making it the only region that showed growth (of 13.7 percent) compared with the fourth quarter of 2011. Verwaayen stated in the company's earnings report that AlcaLu is dealing quickly with its less profitable managed services contracts, reducing its costs quicker than expected, and is seeing "growth in both our order book and backlog." But the big question is, who will replace Verwaayen and will they be able to capitalize on the current strands of hope? Investors clearly have concerns that a handover might not help the company's chances of a full recovery as AlcaLu's share price is down more than 4 percent at $1.64. — Ray Le Maistre, International Managing Editor, Light Reading

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2/21/2013 | 5:25:52 AM
re: Alcatel-Lucent's Q4 Inheritance
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