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Alcatel Slumps on Earnings News

Light Reading
News Analysis
Light Reading
4/28/2005

Alcatel (NYSE: ALA; Paris: CGEP:PA) stock hit 52-week lows in Paris and New York today after the French network equipment maker announced a 55 percent drop in first-quarter earnings.

Alcatel stock price fell 11 percent to $10.46 in midday trading at the NYSE in response to a drop in earnings from €278 million ($359 million) in the year-ago quarter to €124 million ($160 million) in the March quarter (see Alcatel Profits Disappoint and Alcatel Reports 'Solid' Q3 Results). The stock also saw 52-week lows in Paris where it closed down 8 percent at 8.25 euros.

Alcatel’s revenues improved 3.7 percent to €2.61 billion ($3.37 billion) but still disappointed analysts, who had expected between €2.63 billion ($3.39 billion) and €2.64 billion ($3.40 billion).

Alcatel CEO Serge Tchuruk blamed the poor results on a “very competitive market environment” and “a traditional seasonally low first quarter.” But the real culprits were low margins in the company’s fixed and private (enterprise) communications businesses, which showed weak earnings.

“Faster than expected declines of legacy businesses and a slight loss of market share in access were to blame for the very low profitability at fixed communications,” explains analyst Richard Windsor of Nomura Holdings Inc. in a research note today. Windsor says Alcatel's xDSL business is undergoing a transition from ADSL to ADSL2+. “This is worrying as price competition in this space is brutal and volume is critical to maintaining margins.”

Alcatel's private communications also came in below expectations due to slow sales of IP voice to enterprises, Windsor says.

Of primary concern to analysts, however, is Alcatel's €107 million ($138 million) in operating profit in the first quarter -- they had expected €158 million ($204 million). Operating margins for the quarter came in at 4.1 percent.

But Alcatel’s Tchuruk remains optimistic, even bullish on his company’s near-term prospects. “We anticipate a low to mid single-digit growth rate in revenues year-over-year for the second quarter as well as for full year 2005 at a constant Euro/USD exchange rate,” Tchuruk says in an Alcatel release. “Earnings per share should grow at a double-digit rate for the full year."

Overshadowed by the poor net results was Alcatel’s mobile business, which performed well in the first quarter. The business unit’s revenue increased 27.9 percent to €789 million ($1.01 billion) from €617 million ($796 million) in the same period last year.

— Mark Sullivan, Reporter, Light Reading

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naturalwonders
naturalwonders
12/5/2012 | 3:16:53 AM
re: Alcatel Slumps on Earnings News
Perhaps a bit premature butIs this the beginning of the next phase of the Telecom Slump? The article mentions faster than expected declines in legacy (big iron) business duh! What was interesting is the competitive landscape not said was the fact that all of this telco stuff has become pretty much a commodity.
And with Asian vendors Huawei etc. in the market
I would only expect that downward pressure to increase.

but in the last 5 years the entire telcom industry has radically changed before our eyes.

1.) Wifi introduction
2.) Broadband-DSL and Cable modems are commodities
3.) VoIP
4.) Skype like services AOL and (is Google next) entering the Voice market.
5.) Free Wifi

Big Iron is dead and little Iron maybe not far behind. It certainly its going to take longer for this evolution to happen but I think we are in early/mid stage of something much more significant than the shift from Mainframe to PCs.

I think the providers who survive should focus all efforts on one thing only and that is Fat and Dumb First Mile Pipes because that is the final stage of the provider evolution they might just want to get there as quick as possible. In this regard Verizons FIOS may have it right Verizon will probably survive. Telcos have for a long time and still are basing their biz on what David Isen (www.isen.com) calls the scarcity myth and these legacy delivery models are toast . I think the other shoe dropped the other day when Google announced video search.
rjmcmahon
rjmcmahon
12/5/2012 | 3:16:52 AM
re: Alcatel Slumps on Earnings News
I think the other shoe dropped the other day when Google announced video search.

This seems like wishful thinking.

Who has the broadcasting rights to those videos? Google does not. Videos are not like web content which can be produced quickly and cheaply by the masses.

The shoe dropping may have been revealed when the young Google execs were being showcased with the cable company execs :-(
dljvjbsl
dljvjbsl
12/5/2012 | 3:16:50 AM
re: Alcatel Slumps on Earnings News
The interesting network applications are being done outside of the telecom industry. This industry cannot exepct to sell the same old services and expect customers to come flocking.
rjmcmahon
rjmcmahon
12/5/2012 | 3:16:47 AM
re: Alcatel Slumps on Earnings News
The interesting network applications are being done outside of the telecom industry. This industry cannot expect to sell the same old services and expect customers to come flocking.

I would say something like, "This industry cannot keeping selling the same old bit pipes and expect to enable the new network applications, services and content." I'd also reinforce the importance of structural separation as it is impossible for the telecom industry to be the lone innovator for all future digital communications.
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