Alcatel-Lucent Outperforms Rivals in Q1

Alcatel-Lucent has flagged some improvements in profitability for the January-to-March quarter thanks to rising sales of next-generation products and ongoing efforts to bolster efficiency.

The French equipment maker's adjusted operating income rose to €82 million (US$93 million) from €33 million ($37 million) in the year-earlier period. Headline revenues increased by 9% over the same period, to €3.24 billion ($3.68 billion), but would have fallen by 4% at constant currency rates.

Table 1: Alcatel-Lucent's Headline Results (€M)

Q1 2015 YoY change
Revenues 3,235 9%
−IP routing 583 6%
−IP transport 492 8%
−IP platforms 375 7%
−wireless access 1,184 19%
−fixed access 506 10%
−managed services 78 -21%
−licensing 14 0%
Gross profit 1,119 17%
Gross profit margin 34.6% 2.3 percentage points
Adjusted operating income 82 148%
Adjusted operating margin 2.5% 1.4 percentage points
Net income -72 0%
Source: Alcatel-Lucent

Although AlcaLu was hit by a spending slowdown in North America, its performance looked better than that of Sweden's Ericsson AB (Nasdaq: ERIC) or Finland's Nokia Corp. (NYSE: NOK), which has recently been forced to defend its planned €15.6 billion ($17.7 billion) all-stock takeover of Alcatel-Lucent (NYSE: ALU). (See Nokia's Suri Defends AlcaLu Deal Against Critics.)

The Finnish player believes a merger with Alcatel-Lucent will give it the scale to challenge Ericsson as well as China's Huawei Technologies Co. Ltd. , the giants of the equipment market, but critics have argued the deal undervalues Alcatel-Lucent and could be hard to execute.

Shares in all three companies had tumbled last week after both Ericsson and Nokia posted disappointing earnings amid signs of weakness in North America's mobile broadband market. (See Market Woes Drag Vendors Down, Nokia Slumps on Networks Malaise and Ericsson Sinks on North American Slowdown.)

Alcatel-Lucent's share price received a boost from today's earnings update, rising by more than 2.7% on the Euronext Paris exchange in early-hours trading, to €3.30.

The stock lost almost 10% of its value on April 30, closing at €3.15, after Nokia blamed lower software sales and the impact of entry deals into China's 4G market for its first-quarter travails.

Because Alcatel-Lucent derives almost half of its revenues from North America, the slowdown in that region weighed heavily on the vendor in constant-currency terms. Sales in North America were up by 11%, to €1.56 billion ($1.77 billion), compared with the first quarter of 2014, but would have dropped by 9% were it not for favorable foreign-exchange movements.

By contrast, revenues rose at impressive constant-currency rates of 5% in Europe and 7% in the Asia Pacific.

In its earnings statement, Alcatel-Lucent said there were "signs of revival" in Europe, where its strengths in IP routing, IP transport and fixed access paid dividends in the quarter.

Alcatel-Lucent revealed it is now involved with 35 trials of G.fast technology, a means of providing higher-speed connections over short copper loops, and 15 trials of NG-PON2, a fiber broadband technology that promises to deliver 40 Gbit/s of shared downstream capacity. (See Alcatel-Lucent Fires NG-PON2 Starting Gun.)

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It has also flourished in China, having secured a major 4G deal with China Telecom -- the smallest of the country's three big mobile operators -- earlier this year.

Nokia has also been able to establish itself as a key 4G supplier to China Telecom although it appears to have had to cut prices in order to secure new contracts.

The Finnish player counts the Asia-Pacific as its biggest regional market and may have come under pressure to defend its position amid rivalry for the 4G deals.

Alcatel-Lucent's IP core networking business has been widely seen as the engine of its recovery and one of the main attractions for Nokia, but its overall revenue performance was relatively disappointing in the first quarter.

Although reported sales were up by 7%, to €1.45 billion ($1.65 billion), they fell by 3% in constant-currency terms, with the IP routing and IP platforms divisions each registering a decline of 6%.

Alcatel-Lucent said the January-to-March quarter of 2014 had been a "very strong seasonally adjusted Q1" but also pointed to a softer spending environment in North America and a "spending pause" in Japan when explaining the figures.

Revenues from access products rose by 13%, to €1.78 billion ($2.02 billion), but slipped by 2% in constant-currency terms.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

[email protected] 5/7/2015 | 8:11:22 AM
Price pressure Will this increase the volume of those shouting about how Nokia has undervalued ALU? 

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