Ethernet equipment

Lucent Offsets Alcatel Slump

Merger partners Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU) both announced quarterly earnings today, with better than expected results from Lucent offsetting Alcatel's disappointing mobile sales. (See Lucent Reports Q4 and Alcatel Reports Q3 Results.)

Lucent saw a 25 percent sequential increase in revenues during its fourth quarter to $2.56 billion, for a net profit of $371 million or 7 cents per share -- above analysts' expectations of $2.39 billion in revenues and 4 cents per share, according to Thomson Financial . That compares with revenues of $2.43 billion and a net profit of $372 million in the fourth quarter last year.

The vendor attributed the rise in revenues to North American carriers upgrading their mobile networks to EVDO Rev A software and HSDPA.

For the full fiscal year, Lucent reported revenues of $8.80 billion, down from $9.44 billion the previous year, and a net income of $527 million, down from $1.19 million.

On a conference call with investors, CEO Pat Russo said the company was “disappointed in the overall decline in the top line,” but noted that individual segments, such as IP and optical equipment, saw growth. She said the decline was partly due to the continued delay in the awarding of 3G licenses in China, and Lucent's decision to bid more selectively in emerging markets -- particularly India.

Alcatel cited similar factors in its third-quarter results, with revenues from its mobile unit falling from €1.09 billion last year to €994 million. That decline offset gains in its Fixed and Private divisions -- resulting in a 1.4 percent increase in total revenues to €3.33 billion, below analysts’ expectations of €3.46 billion ($4.18 billion) according to a Reuters poll. Its net income of €155 million missed the expected €171.1 million and was down 42 percent from last year.

"It's clear that the competitive positioning has gotten a little tougher in mobile, and we don't expect that to ameliorate in the next several quarters," Mike Quigley, Alcatel’s COO, said on the vendor's conference call.

By early afternoon Lucent shares were up $0.17 (7.26%) to $2.51 on the NYSE, boosting Alcatel's shares 7.19 percent to €10.29 on the Euronext Paris.

Both companies said they saw customers deferring their decisions on signing contracts until the merger between the two is complete. "The fact the deal has not closed has introduced some uncertainty in buyers' decisions," Russo said, noting that telcos are waiting to see which products will be available after the merger. "Customers want to know, what exactly is your road map and what is your time frame?"

Alcatel executives said that consideration extends to its acquisition of Nortel Networks Ltd. 's UMTS business, but added that the vendor has already decided how it will integrate Nortel’s products based on customers’ requests. (See Alcatel Snags Nortel 3G Unit.)

The companies said their merger is on track to be completed once they receive regulatory approval, which is expected to be given before the end of the year. Alcatel CEO Serge Tchuruk said receiving permission for the deal from the U.S. Treasury Department’s Committee on Foreign Investments in the U.S. (CFIUS) is the final hurdle and could come in November. (See Investors Say Oui to Alcatel/Lucent and Alcatel/Lucent Wait on W OK.) Alcatel also expects to close the Nortel buy and its partnership with Thales SA (Paris: TCFP.PA) by the end of the year. (See Alcatel, Thales Agree.)

— Nicole Willing, Reporter, Light Reading

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