Light Reading
Gross margin slipped badly in Q3 and operating losses widened as cost-cutting program gets underway

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
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.

Flash Poll
From The Founder
It's clear to me that the communications industry is divided into two types of people, and only one is living in the real world.
Jonestown
Mobile Backhaul: Going to the Dark Side?

10|30|14   |   2:26   |   (1) comment


Heavy Reading's Patrick Donegan shares his view on a dark trend that bubbled up at Light Reading's annual backhaul conference in NYC.
LRTV Huawei Video Resource Center
2014 Huawei Electric Power Industry Summit: Interview With CEO of SwitchCom

10|30|14   |   4:13   |   (0) comments


SwitchCom, an IT company based in Angola, recommends a variety of Huawei solutions and hardware to their customers in the energy industry.
LRTV Huawei Video Resource Center
2014 Huawei Electric Power Industry Summit: Interview With Ethiopia's Ministry of Water Irrigation & Energy

10|30|14   |   4:08   |   (0) comments


Gosaye Mengistie of Ethiopia's Ministry of Water Irrigation & Energy discusses the collaboration with Huawei in that country.
LRTV Huawei Video Resource Center
2014 Huawei Electric Power Industry Summit: Interview with Dongfang Electronics Corporation

10|30|14   |   5:46   |   (0) comments


Dongfang Electronics Corporation, headquartered in Chengdu, China, is one of China's largest manufacturers of power generators and contractors of power station projects.
LRTV Huawei Video Resource Center
2014 Huawei Electric Power Industry Summit: Interview with Zimbabwe's Customers

10|30|14   |   3:31   |   (0) comments


Representatives of Zimbabwe's Ministry of Power and Development discuss the energy needs of their country as well as new areas of improvement due to enhanced ICT capabilities.
LRTV Huawei Video Resource Center
2014 Huawei Electric Power Industry Summit: Interview With Colbún Chile

10|30|14   |   4:29   |   (0) comments


In Chile, an aging energy infrastructure was in dire need of a modern update. Claudio Valenzuela of Colbún discusses how Huawei's ICT solutions continue to provide crucial information to improve the grid and how an in-country engineer is a cricial asset.
LRTV Huawei Video Resource Center
2014 Huawei Electric Power Industry Summit: Interview With YuLiao

10|30|14   |   6:27   |   (0) comments


Yu Liao, chairman of the Chinese Association for Renewable Energy in Germany, discusses the role that ICT solutions play in helping to grow renewable energy resources in Germany.
LRTV Huawei Video Resource Center
2014 Huawei Electric Power Industry Summit: Interview

10|30|14   |   2:54   |   (0) comments


Sifang has been working with Huawei on several projects. JingTao Wu, Assistant President of Beijing Sifang Automation Co. Ltd., believes that the cooperation with Huawei can facilitate Sifang's process of internationalization.
LRTV Huawei Video Resource Center
A Better Connected Smart Grid: Powering Laos

10|30|14   |   5:38   |   (0) comments


Representatives of Electricite Du Laos (EDL), a state-owned corporation, discuss the importance of ICT solutions in serving their country's energy needs.
LRTV Huawei Video Resource Center
2014 Huawei Electric Power Industry Summit: Interview With Junwei Lu

10|30|14   |   4:50   |   (0) comments


Professor Junwei Lu of Griffith University Australia describes his work with micro grid technology and the future of the power industry.
LRTV Documentaries
The Next-Gen Network Disconnect

10|29|14   |   01:23   |   (2) comments


There's a lot of talk about making networks more simple with SDN, NFV and next-gen broadband technology – but what about the complexity of introducing such capabilities?
LRTV Custom TV
Grow Your VPN Service Revenue

10|27|14   |   4:00   |   (0) comments


Watch how CSP product managers can better differentiate and maximize the value of their Internet, VPN and cloud services for business services customers, by adding premium application performance visibility to their data services.
Upcoming Live Events
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 2, 2014, New York City
December 3, 2014, New York City
December 9-10, 2014, Reykjavik, Iceland
February 10, 2015, Atlanta, GA
May 6, 2015, McCormick Convention Center, Chicago, IL
May 30, 2015, The Westin Peachtree, Atlanta, GA
June 9-10, 2015, Chicago, IL
Infographics
WhoIsHostingThis.com presents six of the world's most extreme WiFi hotspots, enabling the most epic selfies you can imagine.
Hot Topics
Microsoft's Skype Embraces WebRTC on IE
Sarah Reedy, Senior Editor, 10/27/2014
FTC Slaps AT&T With Throttling Lawsuit
Sarah Reedy, Senior Editor, 10/28/2014
Wheeler Gets Down With OTT
Mari Silbey, Independent Technology Editor, 10/29/2014
China's MVNOs Hit the Wall
Robert Clark, 10/27/2014
Let's Not Kill SDN & NFV With Silos
Francois Locoh-Donou, Senior VP, Global Products Group, Ciena, 10/28/2014
Like Us on Facebook
Twitter Feed