Feb. 8 (Bloomberg) -- Alcatel-Lucent SA, the world's largest maker of telecommunications equipment, reported the biggest quarterly loss since its creation in 2006 and scrapped the dividend after cutting the value of a wireless-networks unit.

The loss swelled to 2.58 billion euros ($3.74 billion) in the fourth quarter from 615 million euros a year earlier, the Paris-based company said in a statement today. Alcatel-Lucent said it will have an operating loss in the first quarter.

Alcatel-Lucent's market value has plunged 13.5 billion euros since Alcatel SA bought Lucent Technologies Inc. in December 2006, as the merger and a plan to cut 16,500 jobs failed to compensate for price competition and falling orders. Chief Executive Officer Patricia Russo hasn't said when the company will return to profit.

``There's a large gap between what analysts expected and what Alcatel-Lucent reported,'' said Frederic Hamm, who helps manage 150 million euros at Agilis Gestion in Paris. ``We expected a profit and it was a loss. It's a little worrying.''

Alcatel-Lucent gained 1 cent, or less than a percent, to close at 4.14 euros in Paris, giving the company a market value of 9.59 billion euros. Before today, the shares had fallen 59 percent in the past year, versus a 51 percent drop for Ericsson AB, the largest maker of wireless networks. Alcatel-Lucent is the worst performer in France's CAC 40 Index, which lost 17 percent in the period.

First-Quarter Forecast

Excluding 2.52 billion euros of writedowns, the loss was 48 million euros. Analysts predicted a 181 million-euro profit on that basis, the median of 12 estimates in a Bloomberg survey. The company forecast a loss in the first quarter.

Sales rose 18 percent to 5.23 billion euros from 4.42 billion euros in the year-earlier quarter. Sales had been seen at 4.87 billion euros, based on the median of 14 estimates.

``The results are mixed,'' said Matthieu Bordeaux-Groult, who helps manage $5.8 billion at Richelieu Finance in Paris. ``Sales were slightly better than expected and the operating result was superior to expectation. Guidance offered weak visibility and that will limit the stock's gains.''

Alcatel-Lucent said it cut 6,700 jobs last year, trimming the number of employees to 77,400 at the end of December. In October, the company raised its job-cut target to 20 percent of the workforce in response to falling sales. At the time of the merger, the company said it would cut 9,000 jobs, and raised that to 12,500 a year ago.

Nokia Siemens Networks, the world's third-biggest maker of phone equipment, has said it will eliminate as many as 9,000 jobs, or 15 percent of the global workforce, to reduce annual costs by 1.5 billion euros by 2010.

Cash Costs

Alcatel-Lucent's cash costs for restructuring will be 1.7 billion euros to 1.9 billion euros through the end of 2009, Pesquidoux said.

The company wrote down the value of the business that provides equipment that uses wireless technology called code- division multiple access. Lucent was the market leader in CDMA when acquired by Alcatel. The company also cut the value of the unit that provides IP multimedia subsystems, used for voice and data communications on Internet-based fixed and mobile networks.

Code-division multiple access is used by phone companies including Verizon Communications Inc., Sprint Nextel Corp., China Unicom Ltd. and NTT DoCoMo Inc.

``That is a mature market that in general we think will continue to decline as the years go forward,'' Russo said at a news conference.

GSM

Alcatel-Lucent has reported falling profit from the technology as operators in emerging markets invest in networks that use the global system for mobile communications, or GSM, and operators in mature markets invest in newer technology to provide so-called third-generation mobile services.

``Slower-than-expected ramp-up of revenues'' from the newer technology, known as W-CDMA, ``has severely impacted profitability,'' Russo said in the statement.

The company said that historically, first-quarter sales have fallen 20 percent to 25 percent from the previous quarter. Alcatel-Lucent will have an operating loss in the first quarter as a result, the company said.

``In light of these results and of a more uncertain market outlook, the board has determined that it is prudent to suspend dividend payment for 2007,'' according to the statement. The company paid a dividend of 16 cents a share in each of the past two years.

Default Swaps

Credit-default swap contracts based on Alcatel-Lucent rose 27 basis points to a record 590 today, and from 327 at the end of last year, according to data compiled by Bloomberg. Credit- default swaps are used to speculate on a company's ability to repay debt. A rise indicates worsening perceptions of credit quality.

The company predicts a full-year operating margin of between 2.5 percent and 5 percent, Chief Financial Officer Hubert de Pesquidoux said on a conference call.

Alcatel-Lucent forecast in June that it would have 1.7 billion euros in annual cost savings after three years, and savings of 600 million euros this year. About 55 percent of the total will come from job cuts and 45 percent from process improvements and areas such as purchasing, according to the company.

In the fixed-line network business, revenue increased 15 percent, while the mobile business boosted sales 26 percent.

Alcatel-Lucent's ``convergence'' unit, which makes products that handle video transmissions via fixed and mobile networks, reported a 4.6 percent drop in sales.

Gross profit, or sales minus the cost of goods, jumped 17 percent to 1.69 billion euros. Profit on that basis had been anticipated to rise 18 percent, based on the estimates.

Estimates for the adjusted results ranged from a loss of 207 million euros to a profit of 409 million euros, as analysts differed on whether to include restructuring costs and writedowns.

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

Last Updated: February 8, 2008 12:20 EST