FT, Alcatel Shares Slide on Q3 Results

It's not a good day for French telecom stocks: Incumbent carrier (NYSE: FTE) and equipment vendor (NYSE: ALA; Paris: CGEP:PA) have both seen their share prices slump on less than thrilling third-quarter earnings reports. (See France Telecom Reports Q3 Results and Alcatel Reports Q3 Results.)

France Telecom shares fell by €1.42 (US$1.71), or 6.1 percent, to €21.77 ($26.27) on the Euronext Paris, after it cut its full-year revenue growth outlook to 3 percent in light of revenue performance. It had previously forecast a growth rate of between 3 percent and 5 percent.

FT says revenues for the third quarter, which were up by 3.8 percent to €12.26 billion ($14.79 billion), were negatively affected by falling fixed-line sales in Poland. Pro-forma revenues there were down by 7.9 percent, as consumers replace fixed-line phones with mobiles.

Citing the results as "very disappointing," Ovum-RHK Inc. analyst Jean-Charles Doineau writes in a research note that "these results seem to have urged the France Telecom group into reshaping its fixed operations and organising them as convergent operations in all regions where this is possible."

The operator announced today it's selling its 34 percent stake in Polish mobile operator Centertel to Telekomunikacja Polska SA, in which it still holds a 47.5 percent stake, a move it says will help TP "implement its integrated operator strategy." (See FT Sells 34% Centertel Stake.) A similar move is underway in Spain, where FT's in the process of integrating mobile operator Amena with its Spanish fixed-line and Internet business. (See France Telecom Buys Amena.)

"When this is done, the France Telecom group will have no choice but to deliver growth on the convergent services area, as defined in the NexT strategy plan," writes Doineau. (See France Telecom Launches NExT.) "At that time, we will see if these initiatives really can lead to top-line growth — at present, this vision is open to question."

Over at Alcatel, shares were down 7.5 percent on the Euronext Paris to €9.86 ($11.89) in afternoon trading, up slightly from the day's low of €9.83 ($11.86), on news it has lowered its guidance for full-year operating margins from 10 percent to 9 percent.

Although third-quarter net income increased by 36 percent to €266 million ($320.98 million), on revenues of €3.29 billion ($3.97 billion), every division reported a decline in operating profit. Earnings per share were €0.12 excluding one-time capital gains, 2 cents lower than analyst estimates tracked by Thomson First Call.

Alcatel says it's revising the outlook due to higher investment costs in its mobile division, which is targeting emerging markets, and weakness in the Chinese market, where operators have been shifting orders into next year. (See Falling Chinese Capex Hits ZTE.) On the upside, the mobile division reported an impressive 22 percent increase in revenues to €1.09 billion ($1.31 billion).

"Interestingly, these results confirm some of the key market trends that have been backing recent industry consolidation moves (Ericsson-Marconi), such as the increasing demand for optical networking equipment and the decrease of carrier investment in TDM technologies in the fixed area," Ovum's Doineau writes in a separate note.

Alcatel reported its optical equipment business saw a “significant” increase in revenues driven by capacity upgrades for triple-play and new projects in the submarine cable sector, which offset faster-than-average decline in TDM switching.

“We believe Alcatel will probably face another quarter during which it will incur costs from preparing itself for addressing new markets with new technologies (such as emerging markets, NGN in mobile)," writes Doineau. "The challenge will definitely be the payback period."

— Nicole Willing, Reporter, Light Reading

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