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Alcatel Shares Jump on Wider Profit Margins, Enterprise Sale

Alcatel-Lucent SA (ALU), the French network supplier divesting assets to stem losses, jumped the most in three months after reporting its first quarterly profit in two years and saying it received a bid for its enterprise business.

Net income was 134 million euros ($181 million), after about 3.5 billion euros in accumulated losses over the past six quarters. Operating margin widened by 5 percentage points to 7.8 percent, the Paris-based company said today, an improvement Chief Executive Officer Michel Combes said will continue.

Alcatel-Lucent shares were up 10.1 percent to 3.33 euros at 3:05 p.m. Paris time after rising as much as 13.9 percent to 3.45 euros. The stock has more than tripled sinceCombes last April took on the task of restructuring the company to stem losses -- a quest that began since the 2006 merger of Alcatel SA and Lucent Technologies. CEO changes, job cuts and restructuring failed for almost seven years.

“We were impressed with the gross and operating margin results,” Jefferies Group LLC analysts George C. Notter and James Kisner wrote in a note. “New CEO Michel Combes continues to put his stamp on the business.”

The network-gear maker said it received a binding offer for its enterprise business from China Huaxin, a state-backed technology investor, valuing the unit at 268 million euros including debt. Alcatel will retain a 15 percent stake in the division, which reported 2012 revenue of 764 million euros. Bloomberg News reported last month that Alcatel was in talks to sell it to buyers including a Chinese investor.

‘Sustainable’ Margins

Combes, who promised to raise 1 billion euros from asset disposals by 2015 and reduce expenses by another 1 billion euros, has divested more than 350 million euros so far and cut 10,000 positions at the company. The former Vodafone Group Plc (VOD) executive has negotiated some of the company’s debt and announced a capital increase.

“The growth of our gross margin is robust and sustainable -- we’re on our way to continue to improve it in the next couple of years,” Combes said during a conference call. “I intend to continue to regain commercial traction without sacrificing our gross margins.”

Combes said the gross margin will improve to between 33 percent and 34 percent in the coming three years, compared with 32.2 percent in 2013.

Fourth-quarter revenue was little changed at 3.9 billion euros, Alcatel said. Analysts had predicted 4.18 billion euros on average.

Carrier Spending

Faced with slower carrier spending in the U.S. and Japan after a wave of investments in faster, fourth-generation networks, Alcatel’s competitors have adopted different strategies. Ericsson AB’s focus on more lucrative contracts helped it beat analysts’ projections for profitability in the fourth quarter, while Nokia Oyj (NOK1V)’s equipment unit predicted shrinking profit margins in the current period, signaling it’s ready to sacrifice earnings to revive sales.

“So far so good,” Alcatel’s Finance Chief Jean Raby said in a Bloomberg Television interview. “We’re on track to achieve our 2015 objectives.”

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

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

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