Asset Sale Helps AlcaLu to Q2 Profit

Is Alcatel-Lucent (NYSE: ALU) about to turn a corner?

The company has been hit hard during the past 18 months by a combination of post-merger transformation, a shrinking market, intense competition, and changes in senior management and strategy -- factors that have resulted in a string of financial losses. (See Hard Times for Alcatel-Lucent, AlcaLu Ends 2008 With €5.2B Loss, AlcaLu Down, But Not Out, in Q3, AlcaLu's Q2 Dragged Down by CDMA, and AlcaLu Posts Loss, Warns on Full Year.)

Today the vendor, which is in the midst of a transformation process initiated late last year by CEO Ben Verwaayen, actually reported a net profit of €14 million (US$19.7 million). (See AlcaLu Reports Q2.) That number was even better, at €56 million ($78.8 million), under AlcaLu's "adjusted" financial reporting method (which excludes the non-cash charges associated with the Lucent merger). (See AlcaLu Appoints Transformer and AlcaLu's New Vision: More Convergence.)

That's not any cause for optimism, though, as those profits were largely the result of AlcaLu's sale of its stake in Thales. The company noted that three one-time items (two associated with Thales, one with some legacy Lucent debt) resulted in a net gain, after tax, of €277 million ($390 million) for the second quarter. It added that it is "currently evaluating the potential sale of other non core assets," though didn't specify any parts of its business. (See AlcaLu Sells Thales Stake.)

At an operating level, the company is still losing money, and sales are down compared with 2008. Second-quarter revenues were €3.9 billion ($5.5 billion), better than the first quarter by 8.5 percent, but down 4.8 percent from a year ago. Stripping out currency exchange rate changes, like-for-like sales were down 10.5 percent, the vendor noted. The quarter's adjusted operating loss was €62 million ($87.2 million), compared with an adjusted operating profit of €93 million ($131 million) last year, and the adjusted gross margin was 33.1 percent, down from 34.9 percent a year earlier.

Table 1: Alcatel-Lucent Second Quarter 2009
In � millions (except for EPS) 2Q08 2Q09 Change
Revenues 4,101 3,905 -4.8%
Net income -1,102 14 Improved
EPS -0.49 0.01 Improved

Verwaayen, though, suggested that the tide might be turning for AlcaLu. Although he noted in today's earnings statement that "market conditions remain difficult and operators continue to be selective about their investments," he added that "operationally, we are seeing positive trends in our top-line, gross margin and operating expenses."

And while the company still expects the overall market to shrink by between 8 percent and 12 percent (at constant currency rates) this year, AlcaLu believes it will just about break even at an adjusted operating income level as a result of improved margins and lower costs. That means it's expecting to generate operating profits during the second half of the year, because its adjusted operating loss for the first half of the year totaled €316 million ($444 million).

That outlook cheered investors: Alcatel-Lucent shares rose by 6.7 percent in morning trading on the Paris exchange to reach €1.93 each.

However, the company's traditional business -- selling network infrastructure to telecom service providers -- is still under severe strain. And, like its key European rivals, Ericsson AB (Nasdaq: ERIC) and Nokia Networks , AlcaLu can be thankful for the performance of its Professional Services division. (See Services Save Ericsson in Q2 and Services Now 45% of NSN Revenues.)

As the divisional table below shows, only Services and Applications Software (which includes Genesys contact center systems, Motive broadband management software, and messaging platforms) reported a year-on-year increase in revenues.

Table 2: Alcatel-Lucent Q2 Revenues by Division
In � millions 2Q08 2Q09 Change
Carrier 2,659 2,384 -10.3%
Applications Software 252 260 +3.2%
Enterprise 306 258 -15.7%
Services 809 873 +7.9%
Other and eliminations 75 130 +73.3%
Total 4,101 3,905 -4.8%

The Carrier division saw a decline in sales across the board (even in its IP division), and reported an adjusted operating loss of €136 million ($191 million), compared with an adjusted operating profit of €83 million ($117 million) a year earlier.

Table 3: Alcatel-Lucent Q2 Carrier Division Revenues by Product Line
In � millions 2Q08 2Q09 Change
IP 306 285 -6.9%
Optics 776 728 -6.2%
Wireless 1,030 975 -5.3%
Wireline 574 423 -26.3%
Eliminations -27 -27 0%
Total 2,659 2,384 -10.3%

The only division to report an operating profit, of €87 million ($122.4 million), was Services.

— Ray Le Maistre, International News Editor, Light Reading

kingcharles 12/5/2012 | 3:59:32 PM
re: Asset Sale Helps AlcaLu to Q2 Profit


That one stands out! But in a negative way.

Could that be the one Ben is trying to sell?

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