Optical/IP Networks

Alcatel Optical Is in the Noir

Alcatel SA (NYSE: ALA; Paris: CGEP:PA) announced its second consecutive quarter of profit today, with an upturn in the fortunes of the firm's optical equipment business helping towards a net income figure of €23 million ($27.7 million).

The profits, compared with a net loss of €675 million a year earlier, came from total revenues of €3.08 billion ($3.7 billion), up sequentially from the first quarter's €2.74 billion (see Alcatel Reports Q1 Results), and up from the restated €2.97 billion from a year earlier (restated to exclude discontinued operations, such as optical fiber, optical components, and battery activities).

However, that €23 million profit was down from the first quarter's €134 million (see Alcatel Turns a Corner).

The vendor's earnings per share figure of 2 cents missed analyst expectations of 9 cents per share, and some analysts on the company's conference call expressed disappointment that the vendor's mobile infrastructure unit had not performed better. Trading on the Paris exchange saw Alcatel's share price dip during the morning but recover to end the day slightly up. And on the New York exchange the vendor's stock traded up 14 cents, just more than 1 percent, to $13.39 by early afternoon.

On a positive note, CEO Serge Tchuruk said "90 percent of our portfolio is in growth mode." Other call highlights included Alcatel's reiteration of a full-year outlook that revenues would rise in the high single digits (at constant exchange rates); its forecast that third-quarter revenues would increase by more than 10 percent year-on-year at constant exchange rates; and its reported increase in gross margins to 38.3 percent, up five points from a year earlier and up from the previous quarter's 36.6 percent.

Tchuruk told the conference call that the company's ongoing recovery was fueled by continuing strong "access and IP-NGN equipment sales," with access gear revenues up about 20 percent from a year earlier. And he was quick to point out that the company's optical equipment unit was "back in the black" after a long period of losses.

All these lines contribute to the firm's "fixed communications" business line, which totaled revenues of €1.35 billion ($1.63 billion).

The turnaround in the optical unit was the result of stronger sales folowing the "incorporation of data-aware functionality" into the optical product line and the expansion of metro capacity by carriers needing to deal with greater amounts of broadband traffic, the CEO stated.

So what exactly is driving that optical turnaround? A spokesman said that, while Alcatel doesn't break down the revenues within its business units, the main contributors to the revival are: the OMSN (data aware optical multiservice node) family of products (see Alcatel Joins CWDM Club); the 1678 metro core connect switch (see Alcatel Consolidates Metro Core ); and the 1662 packet ring switch that enables carriers to offer MPLS-based Ethernet services over Resilient Packet Ring Technology (see Alcatel Pushes Ethernet-Over-MPLS and RPR Finds Its Niche).

Tchuruk also talked up the vendor's applications solutions, such as its video over broadband systems (see Alcatel Unveils Open Media Suite and Alcatel Denies iMagic Fadeout), which is becoming increasingly important as "triple-play becomes a reality." (See Heavy Reading: Telco Triple Play, Italians & Triple Play: It's Amore, and Video Profits on Pause?)

The vendor claims that "initial deployment of commercial video-over-DSL solutions has begun in Europe," most likely in France, where competition to deliver such services is hot (see France Telecom Intros TV Over DSL, French Say Oui to DSL TV, and Neuf Says Oui to Alcatel).

And the CEO described the firm's broadband products as the "star" of the portfolio. "We are by far the number one in the world for DSL, with a 40 percent share in the first quarter. It's still very profitable despite strong price pressures, and we can monitor our costs to ensure it remains profitable."

A total of 4.8 million DSL lines were shipped in the second quarter, taking the total for the year to 10.3 million. The vendor said it is still on course to deliver 22 million DSL lines in 2004.

In its NGN (next-generation networks) range, Alcatel claims to have added a further five new customers for its softswitch, taking the total to 26, and says it has more than 50 customers in total for its VOIP solutions.

— Ray Le Maistre, International News Editor, Light Reading

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