x
Optical/IP

Marconi Treads Water

Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) unveiled its first-quarter fiscal 2006 trading update this morning, posting revenues flat against the same period a year ago and showing sales to BT Group plc (NYSE: BT; London: BTA) stable on a sequential and year-on-year basis (see Marconi Reports Q1 Loss).

The vendor, which suffered a major blow earlier this year when BT omitted it from its 21st Century Network plans, recorded revenues of £285 million (US$507.5 million) for the three months to June 30 (see Marconi in Turmoil and BT Shuns Marconi for 21CN). Its operating loss widened to £36 million ($64 million), due mainly to restructuring and share option costs of £27 million ($48 million). (See Marconi to Cut 800 Jobs.)

Discounting those costs, adjusted operating loss was £6 million ($10.7 million), compared with a loss of £2 million ($3.6 million) a year earlier and an operating profit of £21 million ($37.4 million) in the previous quarter.

Revenues from BT, which generated 27 percent of the total sales, were stable at £77 million ($137 million), as the vendor continues to provide optical and access products as well as support and maintenance services.

In addition, Marconi is maintaining its guidance for the full year, with revenues set to match the £1.27 billion ($2.26 billion) recorded in financial year 2005, despite a predicted shortfall of £50 million ($89 million) of revenues year-on-year from BT. Those revenues are set to be maintained by new contracts with other customers (for examples, see Magyar Upgrades With Marconi, Belgacom Picks Marconi, Crescent Fertile for Marconi, C&W Moves Ahead With NGN, and E-Plus to Use Marconi's MSPP).

While some analysts had been expecting better sales, the market reacted positively to the numbers, and Marconi's share price rose nearly three percent to £2.80 ($4.99) in early morning trading on the London Stock Exchange.

But the worst is yet to come, as Marconi is struggling to remain competitive and match its peers, says Richard Windsor, communications equipment analyst at Nomura International. He notes that other vendors, such as Alcatel (NYSE: ALA; Paris: CGEP:PA), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Ltd. (NYSE/Toronto: NT), are all predicting annual growth, and that Marconi will feel the impact of the reduced revenues from BT.

Windsor is also concerned by Marconi's gross margins, which, at 30.2 percent in the first quarter, were down sequentially and year-on-year. "This is a big worry. This number is low compared with the market, with Alcatel in the high 30s and Lucent and Nortel in the low 40s. Marconi's problem is that it's too small to compete with the other major vendors for the big contracts -- BT's 21CN was a classic case...

"It's a reasonable set of results, but it's not looking too good for the future."

— Ray Le Maistre, International News Editor, Light Reading

Be the first to post a comment regarding this story.
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE