Alcatel Reports Q3 Results 619477

PARIS -- Third quarter highlights:

Alcatel's Board of Directors (Paris: CGEP.PA and NYSE: ALA) reviewed and approved consolidated financial statements as of September 30, 2005. Consolidated revenues in the third quarter amounted to Euro 3,289 million, an increase of 8.8% over the same period last year at a current Euro/USD exchange rate (an increase of 9.4% at a constant Euro/USD exchange rate). The gross margin was registered at 34.6%, and included a 0.3 point negative impact from bid hedging, while operating profit amounted to Euro 278 million, representing an 8.5% operating margin. Net income (group share) amounted to Euro 266 million, or a diluted EPS of Euro 0.19 (USD 0.23 per ADS) and included a net one-time capital gain of Euro 0.07 EPS impact related to the transaction of consolidated activities linked to the Space business.

Net cash amounted to Euro 441 million, stable compared to the second quarter 2005. Net Income and cash proceeds from the transaction regarding the space activity financed the restructuring outflows and operating working capital needs.

Note: All historical results are restated for optical fiber, mobile handsets, and power systems.

Serge Tchuruk, Chairman and CEO, summarized the Board's observations:

"Our growth strategy has paid off with strong advances in the third quarter in our carrier business which was up 13% year over year and 9% sequentially. We were particularly pleased to see our fixed communication revenues start increasing again, as anticipated, reversing a four year decline. Also satisfactory was the continuation of our strong performance in mobile communications where revenues grew by 22%, way above the market for the fifth consecutive quarter. At the same time, the revenues of the private communications business were down by 3% year over year as a weak satellite market offset gains in enterprise and transport.

In a very competitive market, our business strategy has been to continue gaining market positions in the mobile field, even if entry costs in new markets or new accounts are high, and also to continue expanding our portfolio into differentiating products and services, accepting front end development costs where leadership positions can be achieved. Consequently, and as anticipated, third quarter comparable fixed costs did not decrease year over year. Overall, operating margins averaged 10% in the carrier space and stayed at around 7% in private communications.

Our outlook remains favorable as our on-going strategy is increasingly proving to be in line with emerging trends in the market. Triple play services are now universally seen to be the key to carriers' long term success: beyond the availability of our extensive portfolio of IP and optics based equipment, carriers throughout the world are showing a growing interest for our unique capability to integrate end to end solutions and guarantee the needed quality of service. Similarly, operating cost considerations are becoming the primary driver in wireless network architectures because of the fast growing competition in mature carrier markets and lower ARPU's in the emerging world: our mobile NGN solution, which is ideally suited to cut network costs, supports further inroads of Alcatel into cellular markets worldwide."

Outlook

"Short term in the fourth quarter we plan to pursue our growth strategy in a market which will remain very competitive. The strong seasonal sequential growth will be somewhat mitigated by the softness of the Chinese market. With a year to date growth already at 9% (at a constant Euro/$ exchange rate), we should see our full year revenues grow at the high end of the 5% - 8% range (at a constant Euro/USD exchange rate). In this market context, and with initial deployments of triple play and mobile NGN, to which we are committed in the fourth quarter at our major customers and which generate costs still disproportionate to booked sales, we now see our outlook for the full year operating margin at around 9%. Expanding operating profitability in the future will continue to remain a priority focus. Full year diluted EPS is expected to be around Euro 0.60, up 40% versus last year."

Alcatel