April 24 (Bloomberg) -- Alcatel-Lucent, the world's largest supplier of telecommunications equipment, posted a first-quarter operating loss on lower sales of mobile and traditional networks. The stock rose the most in four months after the company forecast a recovery later this year.

The operating loss was about 260 million euros ($353 million), Chief Executive Officer Patricia Russo said today in a conference call. Cost savings from job cuts will add to future earnings, she said.

Alcatel-Lucent plans to shed 12,500 jobs over three years to help cut costs, and said today it had achieved 15 percent of the target by the end of the quarter. The company was formed last year through the merger of Alcatel SA and Lucent Technologies Inc. in an effort to fend off increased competition from China's Huawei Technologies Co. and Sweden's Ericsson AB.

``Evidence of the upside in cost synergies and revenue growth should become clearer'' in the second half, UBS analysts Jeffrey Schlesinger and Nikos Theodosopoulos said in a research note.

Alcatel-Lucent shares rose 32 cents, or 3.4 percent, to 9.62 euros, the biggest gain since Jan. 3. Before today, the stock had lost 15 percent this year, compared with a 5.2 percent drop for Ericsson shares.

`Confident' About Sales

The company's order book exceeded billings by 1.3 times at the end of the quarter. Based on the book-to-bill ratio, Alcatel-Lucent, which makes wireless base stations to network software, said it's ``confident'' in its ability to increase sales as the year progresses.

``We saw during the quarter a good build in the order pipeline,'' Russo said. A number of agreements were signed ``that begin to reflect the benefits of the merger, evidence that our customers are accepting our portfolio and see us as a strategic partner,'' she said.

The company shed about 1,900 jobs in the quarter. Russo said cost savings will be included in operating results going forward.

``Investors anticipate the light at the end of the tunnel,'' said Franck Hennin, a fund manager at Richelieu Finance in Paris, which manages about $5 billion. ``The tunnel is longer than expected. We hope the restructuring will bear fruit.''

First-quarter sales fell about 12 percent to 3.9 billion euros, the second consecutive decline, or 8 percent when excluding the effect of currency moves. Sales fell because of lower volumes for older wireless network equipment in some emerging markets and less demand for traditional telephone gear including some types of switches, Russo said.

`Unusual Items'

Alcatel-Lucent's first-quarter loss compares with operating profit of 246 million euros a year earlier, assuming the companies been combined at the time. Alcatel and Lucent completed their merger at the start of December. The company broke even on the operating level in the fourth quarter, which included Lucent earnings only during the last month of the period.

Half of the loss came from ``unusual items'' such as costs to change contracts and shift customers to different products, Russo said. Sales of equipment using the global system for mobile communications, or GSM, fell in emerging markets, she said.

``In this quarter we continued to see a decline in the legacy environment,'' referring to older switch technology, Russo said. That was ``without seeing the real uptake in the next-generation portfolio.''

Job Cuts

In February, the company expanded its job-reduction plan to 12,500 positions over three years from a previous target of 9,000 jobs. Alcatel-Lucent targets pretax cost savings of 1.7 billion euros over three years.

The company expects 55 percent of the planned cost savings to result from job cuts, with the remainder related to process improvement and products. Alcatel-Lucent has said estimated cash restructuring costs will be 1.6 billion euros, with 900 million euros of cash payments this year.

``We were not expecting to see a lot of cost and saving benefits in the first quarter,'' Russo said. ``Those will come and be reflected in our operating result going forward.''

The company had a one-time gain of 780 million euros from the sale of assets to Thales SA, Russo said. The company is not giving details on net income for now, Chief Financial Officer Jean-Pascal Beaufret said on the conference call. The company plans to report full earnings on May 11.

Alcatel-Lucent in February reported a fourth-quarter net loss of 618 million euros, which included restructuring costs and writedowns of 577 million euros, compared with profit of 381 million euros a year earlier.

The company broke even on the operating level in the fourth quarter, compared with operating profit of 566 million euros a year earlier. Pro-forma sales, which assume the merger was in place at the start of 2006, fell 16 percent to 4.42 billion euros from a comparable 5.25 billion euros a year earlier.

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

Last Updated: April 24, 2007 12:56 EDT