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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