& cplSiteName &

Margin Misery for Alcatel-Lucent

Ray Le Maistre
11/2/2012
50%
50%

Alcatel-Lucent (NYSE: ALU) saw its gross margin dip to 27.9 percent in the third quarter as it embarked on its latest efforts to cut costs and achieve profitability.

Consistent profitability looks to be some way off at the moment, though. The company reported third-quarter revenues of €3.6 billion (US$4.64 billion), down 2.8 percent year-on-year but up slightly sequentially, and a net loss of €146 million ($188 million) compared with a net profit of €194 million ($250 million) a year ago. (See Alcatel-Lucent Reports Q3 Loss of €146M.)

The vendor's adjusted operating loss (after one-time costs) for the quarter sunk to €125 million ($161 million), much worse than the €31 million ($40 million) loss reported in the prior quarter.

Things were somewhat different a year ago, though: In the third quarter of 2011, AlcaLu managed an adjusted operating profit of €149 million ($192 million).

The operating losses reported in all three quarters of this year are reflected in the company's gross margin decline, which is clear to see in the table below.

Table 1: Alcatel-Lucent's Gross Margins 2011-2012

Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011
AlcaLu's gross margins 27.9% 31.7% 30.3% 34.4% 35.3% 34.9% 35.3%




For comparison, Ericsson AB (Nasdaq: ERIC) and Nokia Networks reported third-quarter gross margins of 30.4 percent and 32.2 percent respectively.

The vendor explains its dip in gross margin thus: "The year-over-year decline in gross margin results mainly from overall lower volumes, unfavorable product and business mix and unusual high level of reserves. The sequential decline in gross margin mainly results from product and customer mix." In essence, business is worse than it used to be.

In broader terms, CEO Ben Verwaayen noted in his prepared earnings release statement that "our revenue growth and gross margin were impacted by overall carrier spending dynamics and product mix, especially in wireless."

In an effort to improve its margins, AlcaLu is cutting its costs. It signaled its latest cost-cutting initiative, now dubbed The Performance Program, following a full-year profit warning and a grim second quarter, and fleshed out details in September. (See AlcaLu Issues Full-Year Profit Warning, Alcatel-Lucent Could Exit 25% of Services Deals, Alcatel-Lucent to Cut 5,000 Jobs and Alcatel-Lucent: Too Little, Too Late?)

Today the company confirmed it is reducing its workforce by 5,500, about 7 percent of the company's 78,000 staff. Many in the industry question whether that goes far enough. (See AlcaLu Job Cuts to Hit 5,500.)

In addition, AlcaLu notes that it has managed cost savings of €450 million ($580 million) since the beginning of this year and that "five managed services contracts will be addressed by the end of this year." Whether that means the contracts will be terminated or renegotiated isn't clear at this point.

IP division still the shining light
While other Networks divisions such as wireless and optics suffered dramatic year-on-year declines in revenues, the IP systems team continued its run of healthy results, reporting a 30.3 percent increase in sales to €490 million ($632 million). The vendor said that demand for its service router products was particularly strong in Japan, China, the U.S. and Latin America. In addition, it also cited "strong demand for trials of our new 7950 XRS core router in all regions." (See Alcatel-Lucent, Juniper Get Core-Router Upgrades and Alcatel-Lucent, Cisco Clash Over Core Routers.)

For full details on the other Networks units and the performance of the S3 (Software, Services and Solutions) and Enterprise lines of business, read this detailed press release.

— Ray Le Maistre, International Managing Editor, Light Reading

(1)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
gtchavan
50%
50%
gtchavan,
User Rank: Light Beer
12/5/2012 | 5:18:11 PM
re: Margin Misery for Alcatel-Lucent


Walk away if the customer is asking for a price that is below your cost.  A sale below cost is not a sale at all.  It can put your company into financial ruins.  Let them buy from someone else if they can.

From The Founder
Following a recent board meeting, the New IP Agency (NIA) has a new strategy to help accelerate the adoption of NFV capabilities, explains the Agency's Founder and Secretary, Steve Saunders.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
LRTV Interviews
BT's McRae Sheds Light on 4K Strategy

5|25|17   |   4:45   |   (0) comments


At Light Reading's Big Communications Event 2017 in Austin, Texas, BT Group's Chief Network Architect Neil McRae talks about what it took for BT to broadcast live sports in 4K. Catch up with all our BCE coverage at http://www.lightreading.com/bce.asp.
From the Founder
How the NIA Aims to Advance NFV

5|25|17   |   08:07   |   (0) comments


Following a recent board meeting, the New IP Agency (NIA) has a new strategy to help accelerate the adoption of NFV capabilities, explains the Agency's Founder and Secretary, Steve Saunders.
LRTV Custom TV
Better Solutions That Address Growing Scale

5|25|17   |     |   (0) comments


For Comcast, the X1 rollout and 17-fold increases in broadband speeds in the past 16 years are among factors driving the need for Energy 2020 solutions that reduce cost and consumption, says Mark Hess.
LRTV Custom TV
Ethernity Network Delivers Instant Offloading of Network Functions Wth All-Programmable Intelligent NIC

5|25|17   |     |   (0) comments


David Levi, CEO of Ethernity Networks, explains that programmability of the hardware makes the company's All-Programmable Intelligent NIC uniquely beneficial for communications service providers that need advanced data appliances with agile support of virtualization. Utilizing the company's patented network processing technology, Ethernity offers data path ...
LRTV Documentaries
BCE 2017: Vodafone Gets Obsessed With Cloud-Native

5|25|17   |     |   (0) comments


Vodafone's Matt Beal updates us on Project Ocean and explains why simple virtualization isn't enough of a goal for network transformation. Catch up with other BCE 2017 keynotes and news at http://www.lightreading.com/bce.asp.
LRTV Documentaries
BCE 2017: Intel's Take on Network Transformation

5|24|17   |     |   (0) comments


In this BCE 2017 keynote, Lynn Comp discusses Intel's vision for areas such as analytics, automation and service assurance. For more videos and BCE coverage, see http://www.lightreading.com/bce.asp.
LRTV Documentaries
Order From Chaos: The Steve Saunders BCE Keynote

5|24|17   |   17:27   |   (0) comments


Kicking off BCE 2017, Light Reading founder Steve Saunders lays blame for NFV's slow ramp-up and urges telecom to return to old-fashioned standards building and interoperability testing.
Think of this as the video sequel to the recent columns he's written about NFV and the prospect of a telecom app store. (See

LRTV Documentaries
Service Provider Panel: Partnering in the Digital Era

5|22|17   |     |   (0) comments


Coopetition has always been part of telecom, but the ecosphere now includes data centers, vendors, apps developers, cloud service providers and Internet content providers. This BCE 2017 panel explores the new attitudes among network operators as to the value and variety of ...
LRTV Interviews
Site Demo: AT&T's IoT Flow Platform

5|19|17   |   04:25   |   (0) comments


At AT&T's R&D center in Tel Aviv, Israel, project leader Eyal Segev talks about the operator's Flow platform and how it helps to prototype IoT applications.
LRTV Documentaries
Agent of Change: A Q&A With AT&T's John Donovan

5|18|17   |     |   (0) comments


Carol Wilson talks with the man leading AT&T's transformation efforts about the challenge of change.
LRTV Documentaries
BCE Service Provider Panel: The New Business Realities

5|18|17   |     |   (0) comments


For virtualization to happen, the telecom industry first has to grapple with key functional aspects of SDN and NFV that need to be universal, such as onboarding of virtualized network functions and federation of software-defined networks.
LRTV Interviews
BCE Service Provider Keynote: CenturyLink

5|16|17   |   22:32   |   (0) comments


Aamir Hussain leads the Product Development and Technology organization at CenturyLink, which includes the company's information technology function. He is an experienced senior technology executive with more than 25 years of proven success in the implementation of global technology operations, operationalization of complex technology, infrastructures and business ...
Infographics
With the mobile ecosystem becoming increasingly vulnerable to security threats, AdaptiveMobile has laid out some of the key considerations for the wireless community.
Hot Topics
Cities Clamor for More Clout at FCC
Mari Silbey, Senior Editor, Cable/Video, 5/23/2017
What's Blocking 4K TV Today
Alan Breznick, Cable/Video Practice Leader, Light Reading, 5/22/2017
Sonus & Genband Finally Combine to Form $745M Company
Dan Jones, Mobile Editor, 5/23/2017
Apple Looking to Cook 5G Test Devices
Dan Jones, Mobile Editor, 5/24/2017
Fright Wigs & Cocktails: BCE 2017 in Pics
Mitch Wagner, Editor, Enterprise Cloud, 5/19/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
One of the nice bits of my job (other than the teeny tiny salary, obviously) is that I get to pick and choose who I interview for this slot on the Light Reading home ...
TEOCO Founder and CEO Atul Jain talks to Light Reading Founder and CEO Steve Saunders about the challenges around cost control and service monetization in the mobile and IoT sectors.
Animals with Phones
What Brogrammers Look Like to the Rest of Us Click Here
Live Digital Audio

Playing it safe can only get you so far. Sometimes the biggest bets have the biggest payouts, and that is true in your career as well. For this radio show, Caroline Chan, general manager of the 5G Infrastructure Division of the Network Platform Group at Intel, will share her own personal story of how she successfully took big bets to build a successful career, as well as offer advice on how you can do the same. We’ll cover everything from how to overcome fear and manage risk, how to be prepared for where technology is going in the future and how to structure your career in a way to ensure you keep progressing. Chan, a seasoned telecom veteran and effective risk taker herself, will also leave plenty of time to answer all your questions live on the air.