Alcatel-Lucent Losses Press New Chief in Strategy Review

Alcatel-Lucent SA (ALU) reported a fourth straight quarterly loss as its cash pile shrank by half a billion euros, pressing new Chief Executive Officer Michel Combes to complete a strategy review.

The French network-equipment maker’s first-quarter net loss was 353 million euros ($460 million), compared with a profit of 259 million euros a year earlier. Sales increased 0.6 percent to 3.23 billion euros, topping analysts’ estimate for 3.18 billion euros. The operating loss was wider than projected.

Alcatel-Lucent in February named Combes, a former Vodafone Group Plc (VOD) executive, to replace Ben Verwaayen, who agreed to step down after a three-year turnaround plan failed. Combes is reviewing options as he looks to end losses and turn around the Paris-based company.

Improving free cash flow should be the focus of Combes’s strategy for the coming quarters, Sebastien Sztabowicz, a Paris- based analyst at Kepler Capital Markets SA, wrote in a note. There is “still significant balance sheet risk over the immediate to long-term” at Alcatel-Lucent, said Jefferies & Co. analyst George C. Notter.

Alcatel-Lucent’s stock, which was taken out of France’s CAC 40 index in December, fell 0.4 percent to 1.08 euros at 11:11 a.m. in Paris, valuing the company at 2.5 billion euros. The shares gained 8.5 percent this year through yesterday, after falling for three consecutive years.

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Michel Combes, chief executive officer of Alcatel-Lucent SA. Close

Michel Combes, chief executive officer of Alcatel-Lucent SA.

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Photographer: Simon Dawson/Bloomberg

Michel Combes, chief executive officer of Alcatel-Lucent SA.

Cash Consumption

Alcatel-Lucent has averaged an annual cash consumption of 700 million euros since its creation with the 2006 merger of Alcatel SA and Lucent Technologies. In just the first quarter of this year, the company consumed 533 million euros based on free cash flow.

That was mainly due to additional interest payments and restructuring charges, Chief Financial Officer Paul Tufano said during a conference call. Tufano has said the cash impact of restructuring alone will be about 500 million euros this year.

“We are actively reviewing the group’s businesses and operating model to design the conditions for value creation in the future,” Combes said in a statement. “I am looking forward to sharing the outcome in early summer.”

After striking a crucial loan deal in December, Alcatel has said it will consider selling assets outside its core business to bolster its finances. A unit that equips businesses is among those considered for disposal, along with the undersea fiber- optic cables division, people familiar with the matter have said.

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Cable samples are seen on display at Alcatel-Lucent's submarine networks division plant at Greenwich in London. Close

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Cable samples are seen on display at Alcatel-Lucent's submarine networks division plant at Greenwich in London.

“We’re proceeding to prepare for that,” Tufano said today about asset sales, declining to provide a deadline. “We won’t do fire sales.”

Huawei Competition

Alcatel-Lucent said the first-quarter trend for network equipment was “encouraging.” It will continue to improve this year, led by demand from carriers in the U.S. and China, Tufano said.

As operators invest in infrastructure to meet surging data demand, European gear makers are vying for deals to compete with Huawei Technologies Co. Ericsson AB, the largest maker of wireless networks, this week reported first-quarter revenue that trailed analysts’ estimates as Huawei ate into its growth.

Huawei, based in Shenzen, China, this month said it will hire 5,500 people in Europe in the next four to five years as it moves to grab more business in the region while competitors reduce staff. Alcatel-Lucent has said it would cut 5,500 jobs, and Stockholm-based Ericsson has announced it would eliminate 1,550 positions in Sweden. Nokia Siemens Networks, the venture between Nokia Oyj and Siemens AG, in 2011 announced plans to slash 17,000 jobs, or 23 percent of its headcount.

To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net

Photographer: Chris Ratcliffe/Bloomberg

An Alcatel-Lucent employee inspects the internal parts of a repeater unit for a submerged fibre optic cable, at Alcatel-Lucent's submarine networks division plant at Greenwich in London. Close

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Photographer: Chris Ratcliffe/Bloomberg

An Alcatel-Lucent employee inspects the internal parts of a repeater unit for a submerged fibre optic cable, at Alcatel-Lucent's submarine networks division plant at Greenwich in London.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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