Hard Times for Alcatel-Lucent

Alcatel-Lucent (NYSE: ALU) provided the telecom equipment market with a sharp reminder of how tough trading is at present by reporting a 6.9 percent year-on-year decline in first-quarter revenues and a net loss that more than doubled, compared with a year ago.

AlcaLu's revenues fell to €3.6 billion (US$4.8 billion) while its net loss widened to €402 million ($538 million), or €0.18 per share. Gross margins also headed south, to 31.5 percent from 36.2 percent a year earlier.

Table 1: Alcatel-Lucent Q1 2009
In Euros millions except for EPS Q1 2008 Q1 2009 Change
Revenues 3,864 3,598 -6.9%
Net income -181 -402 -122%
EPS -0.08 -0.18 -125%

The company's share price fell by nearly 3 percent to €1.90 in morning trading in Paris.

AlcaLu's predicament mirrors that of rival Nokia Networks , which recently reported a 12 percent decline in first-quarter revenues. Ericsson AB (Nasdaq: ERIC), though, fared better, posting an increase in revenues for the first three months of this year. (See Ericsson Holds Up in Q1 and Nokia's Cellphone Hope.)

A significant decline in equipment sales to North American carriers was at the heart of Alcatel-Lucent's malaise. The vendor's Carrier and Enterprise divisions suffered double-digit year-on-year declines in sales of 14 percent and 17.5 percent, respectively, while revenues from North America were down 16.9 percent, compared with a year earlier.

The company's bright spots were its Services division, which reported a 20.6 percent increase in revenues, and the recently formed Applications Software division (which includes Genesys contact center systems, Motive broadband management software, and messaging platforms), which registered a 13.3 percent increase in revenues.

Table 2: Alcatel-Lucent Q1 2009 Revenues by Division
In Euros millions Q1 2008 Q1 2009 Change
Carrier 2,581 2,219 -14%
Applications Software 225 255 +13.3%
Enterprise 297 245 -17.5%
Services 661 797 +20.6%
Other and eliminations 100 82 -18%
Total 3,864 3,598 -6.9%

Table 3: Alcatel-Lucent Q1 2009 Revenues by Geography
In Euros millions Q1 2008 Q1 2009 Change
North America 1,339 1,113 -16.9%
Asia/Pacific 668 649 -2.8%
Europe 1,280 1,248 -2.5%
Rest of World 578 588 +1.8%
Total 3,864 3,598 -6.9%

It's clear, though, that the vendor expects its profitability to improve during the year, as it reiterated its forecast of break-even for the full year at the adjusted operating income level (that's income from ongoing operations after the costs of the Lucent merger). Alcatel-Lucent reported an adjusted operating loss of €254 million ($340 million) for the first quarter.

"While expected, given seasonality and tough market conditions, we are not pleased with the operating loss incurred in the first quarter," noted CEO Ben Verwaayen in the company's prepared statement. "Our guidance for the year remains unchanged and we are taking appropriate actions.”

Those "actions" are the cost-cutting measures announced in December 2008, when Verwaayen unveiled his new vision for the vendor. "As we discussed before, 2009 will be a year of transition. We are reshaping the company and aggressively pursuing our product portfolio rationalization" and cost-cutting programs, the CEO added. (See Verwaayen Unveils AlcaLu's New Plan and AlcaLu's New Vision: More Convergence.)

The company is still expecting the global telecom equipment and related services market to shrink by between 8 percent and 12 percent this year.

Carrier equipment sales slump
There were few bright spots in Alcatel-Lucent's Carrier division, with the IP router line of business the only one to register a year-on-year increase in sales. Sales of optical gear, though, were down only slightly, helped by a rise in metro aggregation and submarine system revenues. Long-haul DWDM, optical crossconnect, and wireless transport system sales shrank.

Table 4: Alcatel-Lucent Carrier Division Q1 2009 Revenues
In Euros millions Q1 2008 Q1 2009 Change
IP 274 287 +4.7%
Optics 671 657 -2.1%
Wireless 1,111 911 -18%
Wireline 550 394 -28.4%
Eliminations -25 -30 -20%
Total 2,581 2,219 -14%

As with so many preceding quarters, wireless infrastructure sales were down sharply, hit by reduced demand for CDMA and GSM infrastructure. AlcaLu, though, reported a very strong increase in revenues from WCDMA products, driven by sales in China and North America.

Wireline sales were hit by lower revenues from legacy voice and DSLAM products, though sales of VDSL and broadband access customer premises equipment, including GPON optical network terminals (ONTs), were up.

— Ray Le Maistre, International News Editor, Light Reading

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menexis 12/5/2012 | 4:05:31 PM
re: Hard Times for Alcatel-Lucent this economic environment really hurt Alcatel-Lucent's core network business. Not to mention more competition and tough regulatory pressure.
corwin0 12/5/2012 | 4:05:30 PM
re: Hard Times for Alcatel-Lucent

I tend to disagree with the "tough regulatory environment" excuse.  The economy did, indeed, suck, but this trend was well entrenched at ALU way before the downturn.  I'd say failure to execute (including executing the CDMA business "I'm not dead yet...") and various other sacred business units.  Execute, or be executed by the market.

spectatur 12/5/2012 | 4:05:28 PM
re: Hard Times for Alcatel-Lucent

If 2009 is the 'year of transition' for Alu as per Ben, then what do we call the period from Dec 2006 until today.The company has already transitioned beyond scope/recognition where any further transtion probably indicates a message that the company is finally ready to call it quits.

Riders in the storm 12/5/2012 | 4:05:28 PM
re: Hard Times for Alcatel-Lucent this speaks for itself...
jepovic 12/5/2012 | 4:05:28 PM
re: Hard Times for Alcatel-Lucent

"A pitty how an excellent company has been ruined in two years time"

You are referring to Alcatel, I hope? Because Lucent was ruined long ago.

Riders in the storm 12/5/2012 | 4:05:28 PM
re: Hard Times for Alcatel-Lucent

A pitty how an excellent company has been ruined in two years time. Case study on "how-not-to-effect-a-merger" is being prepared in Harvard Business School. Starring: Pat, Serge, Claire, Janet, and yes Ben too, ... It would be funny if not so tragic for the employees and their families. As to the current dramatic performance: The arrival of Ben gave a sparkle of hope at the end of 2008...today his "simplified organizational model" is more confusing than ever (really hard to believe: it got even worse!!!), his management style turns all remaining good people further out of the company, and his brilliant "BT-Global Services" track-record does not inspire too much confidence as well. Probably 80% of the people are simply going to the office and try especially not to make any waves. How ironic, the global crisis is actually helping ALU: if the labour market would be better, the last employee would jump the ship too. Poor story, poor company. Now let's see how fast Huawei and ZTE are going to use this to their benefit. Story-to-be-continued....but am afraid without a happy ending... The last one will turn off the light: I bet it will be a lawyer!!

Fiber Lord 12/5/2012 | 4:05:27 PM
re: Hard Times for Alcatel-Lucent It is hard to start with what is wrong with this company. Hiring an executive from BT is certainly one place. BT is a disaster and this Ben is as much to blame for BTG«÷s complete mess as Helicopter Ben is to blame for the current credit mess. He talks of the new Alcatel-Lucent which has echoes of G«£ this is not your fatherG«÷s OldsmobileG«• campaign, which worked out so well also.

Alcatel had no plan. Lucent had no plan. Serge and Pat thought if they kept the industry distracted with a merger no one would notice how badly they were performing.

Both companies were run by engineers and the merged one is too. This is why you get strategically disastrous decisions made, such as trying to replace a DSL market that you dominate, with an overpriced FTTH market that you do not. Even IP routing, which someone said was a bright spot, is not. For the past couple of years Alcatel-Lucent has not kept up with market growth, which business 101 says is a recipe to failure.

Now that Huawei is moving into North America Alcatel-Lucent is in for an awful lot of hurt. They should have caught up to Nortel by 2012.
menexis 12/5/2012 | 4:05:27 PM
re: Hard Times for Alcatel-Lucent I don't believe they are going to fold. They are looking at a cost cutting mission right now, something like EUR750 millions by end of year. They are looking to return to a net profit perhaps in the second half of 2010
Riders in the storm 12/5/2012 | 4:05:27 PM
re: Hard Times for Alcatel-Lucent run by engineers?? it is run by lawyers, which makes it much worse!!!
Fiber Lord 12/5/2012 | 4:05:26 PM
re: Hard Times for Alcatel-Lucent

Well at least you did not try to justify having a company run by engineers. I am not certain Ben and the other executives are lawyers so I am not certain I see your assertion.

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