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AlcaLu Feels the Squeeze in Q1

When will the tide turn for Alcatel-Lucent (NYSE: ALU)?

The Franco-American vendor added to its long list of disappointing financial reports today with first-quarter numbers that crunched its share price on the Paris stock exchange.

The company reported revenues of €3.25 billion (US$4.15 billion), down 9.8 percent compared with a year ago, and a net loss of €515 million ($658 million), 28 percent worse than last year. It did, though, improve its gross margin and report a reduced operating loss compared with the same period a year ago.

Table 1: Alcatel-Lucent Q1 2010
In millions of euros Q1 2009 Q1 2010 Change
Revenues 3,598 3,247 -9.8%
Gross margin 31.5% 32.6% 1.1 percentage point
Operating income -326 -263 +19.3%
Net income -402 -515 -28.1%
Earnings per share (in euros) -0.18 -0.23 -27.8%




Alcatel-Lucent is not alone in finding the early months of this year a struggle, as rivals Ericsson AB (Nasdaq: ERIC) and Nokia Networks also reported grim first-quarter numbers. (See Carrier Caution Cuffs Ericsson in Q1 and NSN Shrinks Again, But Q2 Looks Rosier.)

Alcatel-Lucent has another thing in common with Ericsson, as both companies said their first-quarter numbers were hit by supply chain problems. Ericsson said it had problems sourcing semiconductors from its suppliers, while AlcaLu stated it was unable to "fully satisfy customer demand for our products due to tightening components availability," with the vendor's mobile access and optical transport product lines particularly affected.

Table 2: Alcatel-Lucent Q1 2010 revenues by division
Revenues in millions of euros Q1 2009 Q1 2010 Change
Networks 2,219 1,928 -13.1%
- of which IP 288 272 -5.6%
- of which Optics 657 567 -13.7%
- of which Wireless 915 819 -10.5%
- of which Wireline 393 298 -24.2%
- of which eliminations -34 -28 -17.6%
Applications 444 416 -6.3%
Services 797 772 -3.1%
Other and eliminations 138 131 -5.1%
Total group 3,598 3,247 -9.8%




AlcaLu suggests that, without those component constraints, it may have been able to paint a rosier picture of its progress so far in 2010. The shortages, stated the vendor's CEO Ben Verwaayen in the company's prepared statement, "resulted in a weak financial performance this quarter, which does not reflect the overall underlying momentum within the company."

The CEO noted: "We are witnessing a recovery in the telecommunications equipment and related services market in some geographical areas especially North America. This recovery is driven by key technologies such as IP, terrestrial optics and WCDMA/LTE. With a solid position in all of these areas, Alcatel-Lucent is experiencing a strong increase in demand."

As a result of these improving market conditions, AlcaLu is expecting to report improved sales for its second quarter.

Investors, though, saw only the weakness, as Alcatel-Lucent's share price dipped by more than 5.4 percent to €2.14 on the Paris bourse in morning trading, ahead of the vendor's lunchtime investor and analyst conference call.

— Ray Le Maistre, International Managing Editor, Light Reading

Pete Baldwin 12/5/2012 | 4:37:05 PM
re: AlcaLu Feels the Squeeze in Q1

JDSU also mentioned components constraints in its quarter - different components and different issues, possibly, but it caused them to miss the analyst consensus for revenues.


Opnext cited components constraints in lowering Q4 guidance, as I understand it.


Any relation?

pogo 12/5/2012 | 4:37:04 PM
re: AlcaLu Feels the Squeeze in Q1

ALU is not alone in posting negative year-on-year growth.  ERICY and NSN did too.  Hard to believe, considering the bleak situation in 1Q09.


Regarding component shortages, are we to believe that with such weak 1Q results, equipment demand is outpacing semiconductor capacity? In hot markets, component shortages might prevent good results from becoming great results, but I don't think shortages will account for ALU's results.

Stefan Sip 12/5/2012 | 4:37:04 PM
re: AlcaLu Feels the Squeeze in Q1 As I recall, Q1 2009 was exactly the best of times in telecom (or rest of the economy for that matter). For ALU to come 10% lower than last year is quite a statement. To partially blame it on supply chain is weak. Someone on the board mentioned a while ago that good ALU people are leaving in mass is a very good predictor of the future, which is now. But for the other vendors competing with ALU, the most dangerous animals are the wounded ones.
opticalwatcher 12/5/2012 | 4:37:01 PM
re: AlcaLu Feels the Squeeze in Q1

Lots of companies across the board shut down factories during the major economic downturn. Anyone actually doing significant manufacturing these days is running into shortage and lead-time problems. 


Does anyone out there involved in manufacturing see anything different than this? (and if so, can you please share where you are getting your parts???)

Pete Baldwin 12/5/2012 | 4:37:00 PM
re: AlcaLu Feels the Squeeze in Q1

> Lots of companies across the board shut down factories during the major economic downturn. Anyone actually doing significant manufacturing these days is running into shortage and lead-time problems.


Yes, that would make sense.  And the components companies would be cautious in ramping back up.  On the optical components side, it seems there's some question as to how much demand is real, and how much is the result of customers double-ordering due to shortages.


Gabriel Brown 12/5/2012 | 4:36:57 PM
re: AlcaLu Feels the Squeeze in Q1

Several vendor sources have said supply of 3G baseband silicon has been tight. I believe this is primarily the Texas Instrument DSPs that most suppliers use. It is, apparently, linked to production capacity and the economic downturn.


It's exacerbated in the wireless market by the fact that volume demand for 3G base station is strong right now.

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