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Alcatel-Lucent to Miss Margin Goal After Quarterly Loss

Alcatel-Lucent Says It Had Second-Quarter Operating Loss
Alcatel-Lucent said it now expects to miss its target for full-year adjusted operating-profit margin, citing “year-to-date performance and the difficult macro-economic environment.” Photographer: Chris Ratcliffe/Bloomberg

Alcatel-Lucent SA, France’s largest telecommunications-equipment supplier, said it will miss a profit target after posting a quarterly operating loss on waning demand. The stock dropped the most in more than 13 years.

Alcatel-Lucent said today in a statement it won’t meet its goal for full-year adjusted operating-profit margin, citing “year-to-date performance and the difficult macro-economic environment.” The Paris-based company earlier this year predicted that its 2012 profit margin would rise.

Chief Executive Officer Ben Verwaayen, trying to cope with a slowdown in spending on network equipment and competition from Huawei Technologies Co. and Ericsson AB, is struggling to keep Alcatel-Lucent profitable. The company -- formed by the 2006 merger of Alcatel SA and Lucent Technologies -- reported its first annual profit in six years in 2011.

“Alcatel will miss its operating profit margin due to the delay of business in China and also the negative economic environment,” Odon de Laporte, an analyst at Credit Agricole Cheuvreux in London, said by phone. “The impact of China delays for other equipment makers such as Ericsson will be more marginal.”

Alcatel-Lucent fell 20 percent to 91 cents, the biggest drop since Sept. 1998. The stock has lost 75 percent in the past year, valuing the company at 2.1 billion euros. Ericsson, the world’s largest maker of wireless networks, dropped 1.3 percent to 58.90 kronor in Stockholm. Nokia Oyj, which owns Nokia Siemens with Siemens AG, slumped 7.9 percent to 1.40 euros in Helsinki.

Europe Malaise

Alcatel-Lucent’s second-quarter adjusted operating loss was about 40 million euros ($49 million), the company said, citing “slower-than-expected business-mix improvement.” Sales topped

3.5 billion euros. Analysts had projected 3.57 billion euros, the average of estimates compiled by Bloomberg.

The company first gave its full-year margin forecast in February, saying adjusted operating profit as a percentage of sales would increase from the 2011 level of about 3.9 percent. It reported a first-quarter adjusted operating loss of 221 million euros.

Alcatel-Lucent plans to give more details when it reports full second-quarter earnings on July 26, said Simon Poulter, a spokesman for the company. European rivals Ericsson and Nokia Siemens Networks are scheduled to report earnings this week.

Alcatel-Lucent is looking to the U.S., Latin America and Asia for growth, Verwaayen said in an interview in May. Phone companies in the U.K., Germany, Italy and France have been reluctant to invest as much as their counterparts in the U.S. and Asia in faster mobile-phone and fixed-line networks because of Europe’s sovereign debt crisis and unfavorable regulatory decisions, he said.

Global Slowdown

Still, a slowing economic growth in regions outside Europe may also hurt demand for phone equipment, Francisco Salvador, a strategist at FGA/MG Valores in Madrid, said in a phone interview today. The economy of China, the world’s most populous country, grew in the second quarter at the slowest pace since the depths of the global financial crisis in 2009.

“During the last three months China has released macroeconomic data that shows the negative impact of the global economic slowdown and the lack of dynamism in consumption trends in the country,” Salvador said. “Today’s announcement could easily mirror what’s next for other equipment makers as well.”

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