Alcatel Offers Tempered Optimism

Alcatel SA (NYSE: ALA; Paris: CGEP:PA) says it expects to report favorable results for the fourth quarter of 2002, but executives there warn that the telecom industry's woes aren't over yet (see Alcatel Sees Sales Uptick).

CEO Serge Tchuruk said this morning that Alcatel expects to show positive cash flow when it announces earnings February 4. What's more, sales growth for the final quarter of 2002 should be in the "high twenties," better than December's guidance of 20 percent sequential growth over third-quarter sales of €3.5 billion (about US$3.7 billion). He also reiterated that the company will report income from operations at a breakeven point: about €4.1 billion ($4.3 billion).

Tchuruk attributes the uptick in sales to seasonal purchases and solid sales in broadband equipment and mobile infrastructure gear. However, he warns that Alcatel's results don't speak for the whole industry: "This is more an Alcatel phenomenon... The seasonal effect was very strong... The market is not taking off in broadband infrastructure; indeed, the market's been pretty poor. But we have done better than the industry.

"The outlook for 2003 is not good... we are not optimistic for 2003, but we are positioning Alcatel for future growth," he added.

Alcatel plans to cut its breakeven point at a rate that's faster than the overall market is receding. Alcatel thinks the market will decline by at least another 25 percent, judging by its current guidance of about €3 billion ($3.17 billion) for breakeven in 2003. To achieve this, the company plans to:

  • Continue layoffs: Alcatel restructured from four to three distinct divisions -- Fixed, Mobile, and Private Communications (see Alcatel Redefines Itself) -- and it continues to cut staff. The company plans to have 60,000 employees by the end of 2003, down significantly from the 84,000 it employed as of June 2002.

  • Divest assets: In today's call, Tchuruk said Alcatel will "possibly" divest more than €1 billion ($1.06 billion) in assets, but he refused to say what might go. "The worst thing to do is make public what is meant for divestment," he said in response to one analyst's inquiry.

  • Emphasize new divisions, services: Alcatel sees future revenues increasingly coming from the services like systems integration and software development -- even if these services require the company to sell more of other vendors' wares. Tchuruk said Alcatel earns about 15 percent of its revenues by providing special services to help design and integrate customer networks. Eventually, it would like to see one third of revenues come from services.

Today's presentation also emphasized Alcatel's search for more enterprise customers and its interest in being a leader in wireless equipment, the only area where it claims to be gaining market share.

Interestingly, Tchuruk said sales prospects in China are "not that great" at present. Execs also told analysts they're carefully monitoring the status of Federal Communications Commission (FCC) regulatory activities in the U.S. And they continue to see positive signs from developing areas of Africa, the Middle East, Eastern Europe, and Southeast Asia.

Analysts asked several questions about the specifics behind Alcatel's plans, but many queries were put off until the earnings announcement next month. Some wondered how Alcatel will support growth in services while cutting staff so drastically. Tchuruk said he thinks the cuts have helped make Alcatel simpler and more efficient.

Tchuruk bristled when asked how Alcatel will avoid competing with its own carrier customers, many of which also are getting into services. "Don't confuse services we provide to our customers with services they provide to their customers... We're different... We're blending equipment, software. We are not at all substituting ourselves for our customers."

— Mary Jander, Senior Editor, Light Reading
pipesoflight 12/5/2012 | 12:52:10 AM
re: Alcatel Offers Tempered Optimism With all the layoffs in the Dallas area along with all those that left the company for greener pastures, "How will Alcatel support collateral issues effectively"? If they reduce staff too much then the support customers expect, will only get worse.
Will this be outsourced?
Sign In