& cplSiteName &

Alcatel-Lucent Shifts Up a Gear to End 2013

Ray Le Maistre
2/6/2014
50%
50%

This could be a landmark year for Alcatel-Lucent, if the vendor can maintain the momentum it built up in 2013.

The company, which is in the midst of a major restructuring program (The Shift Plan), today reported improving margins for the fourth quarter and full year 2013 and announced it had found a buyer for its Enterprise division, one of the non-core units it is looking to offload so it can focus on its IP-based networking and managed services portfolio. (See Alcatel-Lucent Builds Future Around IP and Alcatel-Lucent Unveils Shift Plan.)

That buyer is Beijing-based communications systems supplier China Huaxin, which has struck a binding offer to acquire an 85% stake that values the Enterprise business at €268 million (US$362 million), while Alcatel-Lucent (NYSE: ALU) will retain a 15% stake. The deal is expected to close in the third quarter, once all the necessary negotiations and approval processes are complete. (See Euronews: Is Alcatel-Lucent's Enterprise Unit Sale Back On?)

AlcaLu recently announced the sale of another non-core business unit. (See AlcaLu Sells US Unit for $200M.)

On the financial front, AlcaLu reported improved gross and operating margins for the fourth quarter and full year, and even announced a net profit for the fourth quarter of €134 million ($182.4 million), though its sales were down year-on-year for the fourth quarter and flat for the full year. (See Alcatel-Lucent Reports Q4, Full-Year Results, though note that the sales growth percentages in the official release are for constant currency exchange rates that appear at odds with the reported numbers.)

Table 1: Alcatel-Lucent Q4 & Full-Year 2013 Key Financials

In € millions Q4 2013 Q4 2012 Full Year 2013 Full Year 2012
Revenues 3,930 4,096 14,436 14,449
Gross margin 34.3% 30.4% 32.2% 30.0%
Operating margin 7.8% 2.8% 2.0% -1.8%
Net income 134 -1,558 -1,304 -2,011
Source: Alcatel-Lucent

The company noted that it had achieved fixed-cost savings of €363 million ($494 million) during 2013, higher than forecast. Much of those savings came from cutting staff: The company's headcount at the end of 2013 was about 64,000, down by 12,000 from a year earlier. (See Alcatel-Lucent to Cut 10,000 Jobs.)

The lower cost base and improving margins appeared to cheer AlcaLu's investors, as the vendor's share price rose by 12.9% to €3.42 on the Paris exchange, though some financial commentators put some of that down to short sellers (who have gambled against a recovery) looking to cover their positions.

But there's no doubt that the company still has plenty of work to do, a fact highlighted by a dip in year-on-year revenues for the company's flagship IP Routing unit, part of its Core networking division. While delivering an impressive €555 million ($755.5 million) in revenues in the fourth quarter, it represented a dip from the €619 million ($842.6 million) reported a year earlier.

For the year, though, that particular line of business generated revenues of €2.25 billion ($3.07 billion), up more than 5% from 2012. And CEO Michel Combes moved quickly to allay any fears that the router business might be stalling by expressing his confidence that further growth is more than possible: On today's earnings conference call he noted that he expected double-digit revenues growth from the sale of edge and core routers -- including those used in mobile evolved packet core deployments -- in 2014. "We expect to grow faster than the market," he noted.

He also told investors and analysts that he expected operator capex in North America to remain "robust" this year, "at least comparable" to 2013 spending levels. And, of course, some of that spending is set to go to Alcatel-Lucent from Verizon Communications Inc. (NYSE: VZ), which recently selected the vendor as a key optical transport supplier. (See Analyst: Infinera Loses VZ Deal to AlcaLu.)

Combes kicked back suggestions that AlcaLu had landed that deal by undercutting its rivals. He said the deal was won because of the deep and trusting relationship with Verizon and "the strength of the product."

Combes is also hoping to pick up some new business from Vodafone Group plc (NYSE: VOD) as it starts to invest in its European network upgrades and expansion. (See Vodafone Ups 'Project Spring' Capex to $11B+.)

The CEO noted that AlcaLu is in "close discussions" with Vodafone (along with all other major suppliers) and that he expects to "get some benefit" from Vodafone's spending plans. He is also confident that Vodafone's plans will force other European operators to increase their investments to remain competitive and that the market across Europe would grow as a result.

Combes also expects to book sales from the second wave of 4G network investments in China this year and benefit from ongoing and new spending in mobile broadband rollouts in North America (from Sprint Corp. (NYSE: S) and T-Mobile US Inc. , as long as M&A doesn't get in the way) and also from LTE investments in Europe. "We also expect to see early movement in the market for small cells" in 2014, he noted, without expanding on exactly what that movement might entail. (See How Heavy Reading Called Small Cells Right.)

Not everyone is bullish about Alcatel-Lucent's financial trajectory, though: Combes still has a lot of convincing to do. (See Short Shift: Analyst Doubts AlcaLu's Cost-Cutting Ability.)

— Ray Le Maistre, Editor-in-Chief, Light Reading

(5)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Telecom_BDB
50%
50%
Telecom_BDB,
User Rank: Light Beer
2/7/2014 | 10:31:50 AM
Re: Enterprise sale
FIrst step of the Chinese government, as Huaxin is state owned, to enter into ALU and to get a better grip on the American telecom market ?
DOShea
50%
50%
DOShea,
User Rank: Blogger
2/6/2014 | 9:29:14 PM
Enterprise sale
This sale definitely counts as progress, considering ALU couldn't manage to shed those assets a few years ago when it tried. The buyer sounds like a surprise--in earlier reports, the Siemens/Gores Group JV Unify was mentioned as a likely buyer.
R Clark
50%
50%
R Clark,
User Rank: Blogger
2/6/2014 | 8:43:15 PM
Re: Heading in right direction
So far so good. Looks like they have costs under control but they have more to squeeze out, plus core networking revenue, their prime business, shrank 4%. They need to find an extra 15% over next two years to meet their target.
rgrutza600
100%
0%
rgrutza600,
User Rank: Light Sabre
2/6/2014 | 7:07:26 PM
Re: Heading in right direction
It reads like he completely evaded the question regarding Verizon deal pricing. From CC transcript:

 

Sébastien Sztabowicz - Kepler Cheuvreux, Research Division

One last question, if I may. On the Verizon deal in Optics, some are speculating that you may have gained this deal at the expense of prices. What is your answer there?

Michel Combes - Chief Executive Officer and Director

I guess that you will see the answer in our accounts. What I have said since the beginning, what we are shooting for is profitable growth. So don't expect from us to deviate from this road. I guess that it happens that we had the right product with the right features for Verizon. And so this win has been done and based on the quality of the product and also the quality of the relations that we have with Verizon. I am very proud of this win, which will pave the way for the turnaround of Optics, as we have always discussed altogether in the past few quarters.
Ray@LR
50%
50%
Ray@LR,
User Rank: Blogger
2/6/2014 | 3:25:56 PM
Heading in right direction
It seems that, in terms of fiscal health and longer-term survival, ALU is heading in the right direction.

But if it's true that ALU won the VZON optical deal with a 'competitive' bid, those margins might not carry on heading the right direction...
Light Reading’s Upskill U is a FREE, interactive, online educational resource that delivers must-have education on themes that relate to the overall business transformation taking place in the communications industry.
NEXT COURSE
Wednesday, September 14, 1:00PM EDT
What Is Agile?
Kent J. McDonald, Product Owner, Agile Alliance
UPCOMING COURSE SCHEDULE
Friday, September 16, 1:00PM EDT
How to Implement Agile
Alan Bateman, Director, Agile Transformation
Wednesday, September 21, 1:00PM EDT
What Is DevOps?
Colin Kincaid, CTO, Service Provider, Cisco
Friday, September 23, 1:00PM EDT
How to Implement DevOps
,
in association with:
From The Founder
Light Reading today starts a new voyage as part of a larger Enterprise.
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.
Between the CEOs
CEO Chat: UXP Systems' Gemini Waghmare

8|26|16   |     |   (0) comments


Light Reading CEO Steve Saunders and UXP Systems CEO Gemini Waghmare discuss the strategic importance of digital identity for operators in the midst of transformation.
LRTV Custom TV
F5 Virtual Network Function Integrations With Partner Orchestration Platform

8|24|16   |   6:38   |   (0) comments


F5's Kishore Patnam, product manager for F5's service provider solutions, discusses why service providers are moving towards virtualization and how his clients are utilizing F5's solutions.
Between the CEOs
CEO Chat: Intel's Alexis Black Bjorlin

8|17|16   |   06:23   |   (0) comments


Join us for an in-depth interview between Steve Saunders of Light Reading and Alexis Black Bjorlin of Intel as they discuss the release of the company's Silicon Photonics platform, its performance, long-term prospects, customer expectations and much more.
Telecom Innovators Video Showcase
Accelerating Telecom Digital Transformation With Nominum DNS

8|1|16   |   12:04   |   (0) comments


Light Reading's Steve Saunders gets an update from Nominum CEO Gary Messiana on how his company is helping carriers on the digital transformation journey.
LRTV Custom TV
Reinventing Operations for a Virtual, Software-Defined World

7|28|16   |   5:23   |   (0) comments


Heavy Reading Senior Analyst Jim Hodges speaks with Accenture's Larry Socher and Matt Anderson about what service providers must do to transform their business to get the benefits of SDN and NFV including: leveraging DevOps, introducing real-time OSS and implementing analytics.
Women in Comms Introduction Videos
Fujitsu Sales Leader Shares Lessons Learned

7|27|16   |   5:12   |   (1) comment


As Fujitsu's only female sales leader, Annie Bogue knows the importance of asking for what you want, being flexible (she's been relocated five times), keeping a meticulous calendar, 'leaning in,' working harder than everyone else around you, being aware and more.
Telecom Innovators Video Showcase
VeEX Test & Measurement Solutions

7|25|16   |   08:57   |   (0) comments


Cyrille Morelle, president and CEO of VeEX Inc., talks test and measurement with Light Reading's Steve Saunders at BCE 2016. This includes innovative products such as VeSion Cloud-Based platform for network monitoring; MTTplus Modular Test platform for Access, Business, Carrier Ethernet, Transport and Core services; and OPX-BOX+ for Fiber Optics.
LRTV Custom TV
VeEX: Live From BCE 2016

7|25|16   |   03:20   |   (0) comments


VeEX's Senior Director of Business Development, Perry Romano, explains how VeEX provides tools to help install, maintain, monitor and manage network infrastructure efficiently and effectively. The portfolio of products on display include the RXT-6000, MTTplus and TX300s.
LRTV Custom TV
Real-Time Telemetry & Analytics for Intelligent SDN Orchestration

7|25|16   |   03:09   |   (0) comments


Packet Design CEO Scott Sherwood discusses how real-time network telemetry and analytics are enabling a new breed of SDN orchestration applications.
From the Founder
The Russo Report: Driving Disruption

7|25|16   |   07:44   |   (2) comments


In the first episode of a four-part series, Light Reading Founder and CEO Steve Saunders and Calix President and CEO Carl Russo drive around town discussing the disruptive mega-changes in the communications industry and where hope lies for service providers to meet the escalating demands of the cloud.
LRTV Custom TV
NetScout: Maximizing Enterprise Cloud for Digital Transformation

7|20|16   |   04:53   |   (0) comments


Light Reading Editor Mitch Wagner talks to NetScout CMO Jim McNiel about maximizing the benefits of enterprise cloud and digital transformation while minimizing potential pitfalls with a proper monitoring and instrumentation strategy.
Women in Comms Introduction Videos
Ciena's VP Offers a Career Crash Course

7|20|16   |   4:14   |   (2) comments


How did Ciena's Vice President of Sales, Angela Finn, carve out her career path? Simple, she tells WiC. She stayed true to her company, customers and principles. She shares her advice for women on how to be authentic and credible, as well as for companies that want to make a real change to their culture and practices.
Upcoming Live Events
September 13-14, 2016, The Curtis Hotel, Denver, CO
November 3, 2016, The Montcalm Marble Arch, London
November 30, 2016, The Westin Times Square, New York City
December 1, 2016, The Westin Times Square, New York, NY
December 6-8, 2016, The Westin Excelsior, Rome
May 16-17, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
Hot Topics
Cisco Developing 'Monica' Digital Assistant
Mitch Wagner, West Coast Bureau Chief, Light Reading, 8/22/2016
FirstNet: A Billion-Dollar Boondoggle?
Dan Jones, Mobile Editor, 8/26/2016
WiCipedia: Should Men Be Included? & Olympians Face Discrimination
Eryn Leavens, Special Features & Copy Editor, 8/26/2016
Google Fiber Can't Be Called a Failure
Carol Wilson, Editor-at-large, 8/26/2016
Google Fiber Downsizing Not Confirmed
Mari Silbey, Senior Editor, Cable/Video, 8/25/2016
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Light Reading CEO Steve Saunders and UXP Systems CEO Gemini Waghmare discuss the strategic importance of digital identity for operators in the midst of transformation.
Join us for an in-depth interview between Steve Saunders of Light Reading and Alexis Black Bjorlin of Intel as they discuss the release of the company's Silicon Photonics platform, its performance, long-term prospects, customer expectations and much more.
Animals with Phones
Live Digital Audio

Bridging the tech skills gap is a major challenge for service providers and suppliers alike today – and the challenge is two-fold when it comes to increasing the number of women in the comms space. Level 3 Communications has made it a priority to overcome both challenges by implementing several unique programs focused on building the right candidates from within – in addition to filling the funnel by supporting STEM and other education programs. During this radio show, you’ll learn about these programs from Mary Beth McGrath, SVP of Global Talent Management at Level 3, and the best ways to bridge your own skills gap so that you are motivated and equipped for change. Plus you’ll have the chance to ask Mary Beth your questions live on the air.