Alcatel-Lucent Suffers Q1 Slump
While the vendor's management had warned in early February that first-quarter revenues were likely to show a decline, the financial markets initially reacted badly, as analysts, on average, had been expecting revenues of €4.05 billion ($5.5 billion) and a small operating profit.
Alcatel-Lucent's share price fell €0.25, about 2.7 percent, to €9.05 in morning trading on the Paris bourse, but bounced back by the middle of the day to €9.42 -- €0.12 (1.3 percent) higher than Monday's closing price.
When Alcatel-Lucent started trading on December 1, 2006, its share price stood at €10.07. (See Alcatel-Lucent Stays Tight-Lipped.)
The analyst team at Dresdner Kleinwort believes the "sheer scale of Alcatel-Lucent's second sales warning in the space of three months ought to unnerve even the most avid of supporters." They believe a fair price for the stock is €8.00.
So what's the problem? Alcatel-Lucent says the first quarter was "impacted by lower volumes in traditional wireless and core networks at a time when considerable investments were made in the next generation of these technologies." (See Mobile Weakness Marks AlcaLu Malaise, Alcatel Snags Nortel 3G Unit and Analysts: Alcatel Got a Bargain.)
Weakness in the mobile infrastructure market has also caused recent problems for Nokia Networks . (See Nokia Siemens Opens on a Downer.)
But Alcatel-Lucent has also recorded some significant successes in recent months, including a major deal at Verizon Wireless , a role in China Mobile Communications Corp. 's 3G rollout, a major outsourcing deal in Germany, and a large contract in Nigeria. (See AlcaLu Lands $6B Deal, China Mobile 3G Contracts Awarded, AlcaLu Answers Outsourcing Critics, and Alcatel-Lucent Wins $600M.)
And CEO Pat Russo sees things picking up during the year. In the vendor's prepared statement, Russo is quoted as saying there is "strong momentum in order flow," with a book-to-bill ratio (the value of orders placed compared with orders filled) of 1.3 at the end of the first quarter -- a situation that "leads us to remain confident in our ability to resume growth as the year progresses."
Does that mean the company is sticking to its previously announced full-year forecast of mid-single-digit growth, which, at a 5 percent growth rate, would deliver 2007 revenues of €19.2 billion ($26 billion)? The company isn't commenting on that at present, saying only that it will comment on its outlook when it presents its detailed first-quarter earnings report on May 11.
The analyst team at Dresdner believes that the mid-single-digit growth target is "in jeopardy" and that the vendor's "management needs to produce at least 10% revenue growth through the remainder of the year (April-December), or be compelled to temper the full year outlook." Sticking to the previously stated target would require average quarterly revenues of more than €5 billion ($6.8 billion), they noted.
They are also unimpressed with the book-to-bill ratio, as the "imputed order intake of [about] €5.1bn is not unusual for this period of the year." Nomura Securities analyst Richard Windsor writes in an emailed research note that while the ratio "is reassuring, offering some comfort that revenues should stabilise from here," it is "flattered by the very weak sales number (bill)."
Elsewhere on the plus side, the vendor's CEO Pat Russo is quoted as saying "the technology choices have been finalized and the combined company’s portfolio communicated to our customers." Uncertainty about which products would be retained has caused uncertainty among AlcaLu's staff and customers, and was partly responsible for the vendor's stuttering start as the world's biggest telecom equipment supplier. (See AlcaLu Makes Product Cuts , Alcatel-Lucent Updates on IPTV, and Alcatel-Lucent Unveils IPTV Strategy.)
But the vendor isn't ready to share those decisions with the wider world just yet. "While we have communicated the portfolio choices to our customer base, there is still work to do in the re-branding and sheer volume of work associated with making all of the changes to the Website, as the company has one of the largest end-to-end solution portfolios in the industry," states a spokesman.
Alcatel-Lucent also noted today that its net headcount reductions during the first quarter totaled 1,900, about 15 percent of the three-year target of 12,500 job cuts. (See Alcatel-Lucent Job Cull Hits 12,500.)
— Ray Le Maistre, International News Editor, Light Reading