Light Reading

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: Lightning
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...
Educational Resources
sponsor supplied content
Educational Resources Archive
Flash Poll
From The Founder
Network architects aiming to upgrade their networks to support agile, open, virtualized services in the 21st century need to consider new criteria when choosing between technology suppliers.
Live Streaming Video
BTE 2015 Sponsor Keynote: HP
Dr. Prodip Sen, CTO, Network Functions Virtualization, HP
LRTV Custom TV
Red Hat Demo

7|2|15   |   10:53   |   (0) comments


Red Hat's Nicolas Lemieux demonstrates how Red Hat is driving innovation through open source communities.
LRTV Custom TV
Red Hat's Approach to OpenStack Adoption

7|2|15   |   5:17   |   (0) comments


Red Hat's Radhesh Balakrishnan outlines his company's open source strategy for both enterprises and telcos.
LRTV Custom TV
The New IP Goes Mobile With vEPC

7|2|15   |   1:12   |   (0) comments


Heavy Reading's Gabriel Brown discusses results of a Light Reading survey sponsored by Brocade that shows a clear commitment by mobile operators to move quickly to virtual EPC deployment.
LRTV Custom TV
Making Business Sense of SDN

7|2|15   |   1:42   |   (0) comments


Results of a Brocade-sponsored survey show that CSPs have a clear sense of SDN use cases but are wrestling with the business case. Sterling Perrin of Heavy Reading looks behind the numbers.
LRTV Custom TV
NFV Will Be Here Sooner Than You Think

7|2|15   |   2:22   |   (0) comments


Forget the usual ten-year cycle for new technologies – NFV will be a core part of CSP networks in five years, based on results of a Brocade-sponsored survey, says Heavy Reading's Caroline Chappell.
LRTV Custom TV
The New IP Gains Traction With CSPs

7|2|15   |   1:42   |   (0) comments


Roz Roseboro of Heavy Reading analyzes results of a Light Reading survey sponsored by Brocade showing that CSPs are getting serious about making the transition to the New IP era.
LRTV Custom TV
It's (Real) Time for Analytics

7|2|15   |   1:42   |   (0) comments


Heavy Reading's Jim Hodges looks at how CSPs say they plan to use analytics to deploy new services in real time as part of The New IP, based on results of a survey sponsored by Brocade.
LRTV Documentaries
IoT in Action

6|30|15   |   1:39   |   (8) comments


Two co-workers discuss the benefits of IoT technology.
LRTV Interviews
Ericsson Opens Up on OPNFV

6|30|15   |   14:16   |   (2) comments


Martin Bäckström, VP and head of industry area Datacom at Ericsson, talks to Light Reading founder and CEO Steve Saunders about the emergence of OPNFV, the importance of standards and Ericsson's OPNFV plans.
LRTV Custom TV
NetNumber Founder Discusses NFV/SDN Impact on SP Networks

6|26|15   |   4:15   |   (0) comments


NetNumber Founder Doug Ranalli examines why SPs need a new network infrastructure for service agility. While NFV and SDN are the tools, the old ways of thinking about signaling control are inhibitors. Doug provides his recommendations.
LRTV Custom TV
Orchestrating NFV vCPE Services Across Multivendor Networks

6|26|15   |   5:46   |   (0) comments


Nirav Modi provides an overview of vCPE, the fastest-growing NFV use case, showing how Cyan's Blue Planet orchestrates vCPE services across a multivendor infrastructure to rapidly deliver new managed services for business customers.
LRTV Custom TV
ZTE at LTE Summit Amsterdam 2015

6|26|15   |     |   (0) comments


As one of the leading global telecommunications providers, ZTE presented its cutting-edge technology at LTE World Summit 2015 in Amsterdam. On display at ZTE's booth were the latest R&D achievements in wireless, 5G development, HetNet, deep convergence of FDD and TDD, and RCS/IMD/iSDN/vCN.
Upcoming Live Events
September 16-17, 2015, The Westin Galleria Dallas, Dallas, TX
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
October 6, 2015, The Westin Peachtree Plaza, Atlanta, GA
October 6, 2015, Westin Peachtree Plaza, Atlanta, GA
October 14-15, 2015, New Orleans Ernest N. Morial Convention Center, New Orleans, LA
November 5, 2015, Hilton Santa Clara, Santa Clara, CA
All Upcoming Live Events
Infographics
Hot Topics
Who's Feeding Fiber to LinkNYC Hotspots?
Mari Silbey, Senior Editor, Cable/Video, 6/29/2015
What's a Gigabit Good For?
Carol Wilson, Editor-at-large, 7/1/2015
Colt to Jettison Ailing IT Business
Iain Morris, News Editor, 6/30/2015
Eurobites: Activist Investor Takes Stake in AlcaLu
Paul Rainford, Assistant Editor, Europe, 6/30/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Casa Systems has been going from strength to strength over the last couple of years. In 2013, it became the first vendor to ship an integrated CCAP device -- the ...
Cedrik Neike, SVP of Global Service Provider, Service Delivery, at Cisco, talks to Light Reading founder and CEO Steve Saunders about solving service provider customer problems in a virtualized, DevOps world, including multivendor support and the future of network procurement.
Cats with Phones