CDMA Hits AlcaLu's Wireless Biz

Alcatel-Lucent (NYSE: ALU)'s strides in improving its GSM and WCDMA products and profitability were overshadowed by a drop in CDMA revenues in the vendor's first quarter results today. (See AlcaLu Posts Loss, Warns on Full Year.)

AlcaLu's first quarter wireless revenues were down 6.5 percent year-on-year from €1.161 billion ($1.8 billion) in 2007 to €1.086 billion ($1.7 billion) in 2008. While a decline in CDMA sales was expected, the vendor said these sales fell "materially" year-on-year from an extra strong first quarter last year. The vendor does not reveal revenue figures for specific product areas so we can't pin a number on "materially".

The vendor said that it grew its GSM business year-on-year from network expansions in China, India, the Middle East, and Africa. And first quarter WCDMA revenues more than doubled compared to the first quarter last year, but they started from a low base, noted the vendor. AlcaLu also boasted five new WiMax contracts in the first quarter. (See AlcaLu Wins WiMax Deals.)

"In GSM, we have good, profitable growth due to a refreshed product portfolio," said AlcaLu CEO Pat Russo on today's earnings call with analysts. "GSM and WCDMA were offset by the expected decline in CDMA."

The vendor introduced a new GSM platform last year that comprises its Twin TRX radio transceiver that doubles the base station capacity and its ATCA-based BSC (base station controller).

For the WCDMA portfolio, AlcaLu says it is on track with integrating the 3G products it acquired from Nortel Networks Ltd. . AlcaLu is developing a new platform that merges its own WCDMA platform with that of Nortel's. (See Alcatel Snags Nortel 3G Unit and AlcaLu Expands 3G Biz With AT&T.)

The new platform is due later this year and it will improve the vendor's WCDMA business by cutting R&D costs, according to Russo.

"The improvement in overall financial performance of WCDMA is from a number of factors: volume, product cost reduction, and operating expense reduction... including R&D," said Russo. "Once the two platforms converge into one, we'll feel the savings in R&D."

But despite the efforts in GSM and WCDMA, the CDMA business will continue to be a drag on AlcaLu this year.

"The [CDMA] market is mature. It's still a good business and clearly one that is declining," said Russo. "It's unlikely we'll see CDMA in the aggregate grow in 2008. It's a declining market and we're 50 percent of it."

— Michelle Donegan, European Editor, Unstrung

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