Alcatel Slams Wireless Price War
Alcatel (NYSE: ALA; Paris: CGEP:PA) CEO Serge 'The Merge' Tchuruk lashed out at his company's GSM infrastructure rivals today, saying they were driving pricing levels down to unsustainable levels in a bid to win market share.
Talking during his company's second-quarter conference call, Tchuruk said that a lot of the players involved in merger consolidation "are trying to reposition themselves aggressively and are trying to buy market share." (See Alcatel Reports Q2.)
He added: "Some prices in new contracts, for instance in Latin America, are becoming extravagant, and we decide not to go into it. Our customers are not naïve enough to let us recover bountiful margins later on. Competition is quite strong, particularly from established players."
Those comments came as Alcatel reported an operating margin of 7.9 percent for its mobile communications division, with operating profits of €80 million (US$102 million) from revenues of just over €1 billion ($1.27 billion) in the three months to June 30. Alcatel also suffered a margin squeeze in its mobile business in the first quarter of the financial year. (See Alcatel Battles Margin Pressures.)
Without directly naming the competitors, Tchuruk made it clear he was referring to Ericsson AB (Nasdaq: ERIC), Nokia Corp. (NYSE: NOK), and Siemens Communications Group , Alcatel's main GSM competitors, all of which are involved in the current vendor consolidation craze, along with Alcatel of course. (See Nokia, Siemens Create Networks Giant, Lucatel Clears Euro Hurdle, and Ericsson Buys Bulk of Marconi.)
Late last week, Ericsson CEO Carl-Henric Svanberg said he believed his company had won the vast majority of work to build a new GSM network for Brazilian CDMA mobile operator Vivo Participacoes SA -- a move referred to in Wednesday's Lucent Technologies Inc. (NYSE: LU) conference. (See Lucent's Russo: Don't Panic!)
"We absolutely decided not to follow the pricing seen at Vivo," stated Tchuruk, adding that there is no point in investing in losses.
The CEO also took the opportunity to crow about the combined might of Alcatel and Lucent, noting it will be bigger and more technically and geographically diverse than Ericsson/Marconi or Nokia/Siemens. The CEO stressed particularly Alcatel's growing presence in the routing market. (See Alcatel Router Revenues Surge and Alcatel Shrinks Access Router.)
"IP is absolutely key to the future, and we have strong IP technology. I'm not sure our two main competitors are in the same shape," he boasted.
That IP portfolio, which has been putting pressure on Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (NYSE: JNPR), is still growing rapidly, according to Alcatel COO and president, Mike Quigley.
Quigley said service routing revenues were up fourfold year-on-year, while sequential revenue growth was in the double digits, and that 15 new customers had been signed up in the second quarter. (See Alcatel Wins in Egypt .)
While Alcatel didn't provide actual numbers, according to statistics from Synergy Research Group Inc. , Alcatel's IP products generated $35 million in revenues in the second quarter of 2005, which would put the latest quarter's revenues from IP routing products at around $140 million.
Alcatel also recorded a record period for DSL line shipments, hitting 5.9 million in the second quarter, said Quigley. He also talked of growing WDM equipment demand, a better performance in IMS elements, and greater investments in WiMax, an area where Alcatel recently announced a trial with BellSouth Corp. (NYSE: BLS). (See BellSouth Selects Alcatel .)
And the COO also had to field questions about his future, with one analyst on today's conference call wondering whether Quigley is committed to staying with the company once it merges with Lucent, especially as he recently opted for a less up-front role. (See Quigley Steps Down as Lucatel COO and Inside Lucatel: Quigley's Not Mad at Pat.)
"If I was going, I'd be gone by now," said Quigley. "I have no plans to go anywhere else."
And there seems to be little in the way of the Lucatel merger closing before the end of the year, according to Tchuruk. He said he hadn't thought about a "Plan B" that would come into action if the merger fell apart, so convinced is he of its success. He said Alcatel couldn't provide guidance for the full financial year as he expects to be reporting the fourth quarter as a merged company.
In total, Alcatel reported second-quarter revenues of €3.38 billion ($4.3 billion), and net income of €180 million ($229 million). Having fallen in morning trading, the vendor's share price picked up and closed the day in Paris up €0.08, nearly 1 percent, at €8.71 ($11.09).
— Ray Le Maistre, International News Editor, Light Reading