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Alcatel-Lucent Slumps on Operating Loss as Sales Trail Estimates

Ben Verwaayen, chief executive officer of Alcatel-Lucent SA. Photographer: Scott Eells/Bloomberg
Ben Verwaayen, chief executive officer of Alcatel-Lucent SA. Photographer: Scott Eells/Bloomberg

April 26 (Bloomberg) -- Alcatel-Lucent SA, France’s largest telecommunications equipment supplier, dropped as much as 17 percent after reporting a first-quarter loss and as sales missed estimates because European clients withheld spending.

The operating loss, adjusted for some items, was 221 million euros ($292 million), after a year-earlier profit of 4 million euros, the Paris-based company said today. Revenue fell 12 percent to 3.21 billion euros, partly reflecting the sale of call-center software unit Genesys. Analysts had projected sales of 3.24 billion euros.

Chief Executive Officer Ben Verwaayen is struggling to keep the company profitable after Alcatel-Lucent in February reported its first annual net income in six years, marking the end of his three-year turnaround plan. Alcatel-Lucent and Nokia Siemens Networks are cutting jobs to catch up with Ericsson AB and Huawei Technologies Co. and cushion a slowdown in spending on network equipment.

“Look to the euro crisis all around us, that has an impact,” Chief Executive Officer Ben Verwaayen said on a conference call. “It’s a serious issue to factor in and a good reason to be cautious.”

Firings

Nokia Oyj last week reported a first-quarter operating loss of 1.34 billion euros, burdened by charges of 772 million euros for the unprofitable equipment venture with Siemens AG. Nokia Siemens, which announced plans in November to eliminate 17,000 jobs, or about 23 percent of its workforce, has been unprofitable in all but two quarters since it was set up in April 2007.

Alcatel-Lucent intends to eliminate as many as 1,800 positions in Europe through firings and relocation, a union official said in February. The company -- formed by the 2006 merger of Alcatel SA and Lucent Technologies -- last quarter also reached an agreement to license its 29,000 patents through syndicate RPX Corp.

Alcatel-Lucent’s patents include voice-recognition and videoconferencing technology and the license agreement is similar to a strategy that Ericsson adopted to counter a slowdown in spending by phone operators.

Alcatel-Lucent fell 12 percent to 1.29 euros at 10:34 a.m. in Paris, paring the gain this year to 6.8 percent and giving the company a market value of 3 billion euros.

Ericsson, the world’s largest maker of wireless networks, yesterday reported gross profit margins that topped analysts’ estimates, while net income more than doubled after the Swedish company sold a stake in its handset venture with Sony Corp.

Asset Sales

First-quarter net income at Alcatel-Lucent was 398 million euros, boosted by gains from the sale of Genesys, which was completed in February. Alcatel-Lucent today confirmed its February forecast for a rising profit margin this year.

The gross profit margin, or the percentage of revenue left after deducting costs of goods sold, fell 5 percentage points to 30.3 percent from a year earlier, Alcatel-Lucent said. The company sold fewer products and faced weaker demand for its more profitable services, while it spent about 1.2 billion euros on administrative, selling and research expenses.

First-quarter margins would be “a low point of the year,” Chief Financial Officer Paul Tufano said on the call. “We expect margin improvement in the second quarter and the second half.”

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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