February 10, 2008

Alcatel-Lucent sees loss, uncertain 2008

PARIS - Telecommunication equipment titan Alcatel-Lucent sees global economic woes causing it uncertainty in 2008 after the newly merged company survived a choppy 2007, reporting a fourth-quarter loss Friday and scrapping its dividend for last year.

The Franco-American company had some good news, however: Sales rose, and it swung to an operating profit in the fourth quarter.

Analysts said the results were slightly better than expected and that the company's grim outlook reflects the difficult market overall.

Rivals Telefon AB LM Ericsson and Nokia Siemens Networks have already given downbeat forecasts for the market in 2008 amid falling orders. Shares in all three companies rose initially on Alcatel-Lucent's earnings report.

Alcatel-Lucent reported a net loss of $3.76 billion in the quarter ending Dec. 31 and $5.12 billion for the year, as it booked $3.71 billion in write-downs in the quarter related to the reduced value of assets inherited from Lucent Technologies Inc.

Revenue for the fourth quarter rose to $7.61 billion, up 18 percent from the same period in 2006 and above analysts' forecasts.

Operating profit amounted to $441 million, compared to a loss of about $4 million a year earlier. Operating profit excludes one-time items such as restructuring costs and asset sales, but is often used as a yardstick for a company's basic business activity.

The fourth quarter normally sees strong revenues for telecommunications equipment makers, and the latest figures were up — but from a disappointing total in the fourth quarter of 2006, during which Alcatel SA of Paris completed its acquisition of Lucent Technologies Inc. of Murray Hill, New Jersey.

Alcatel-Lucent suspended its dividend for 2007, citing uncertainty for this year.

"While the long-term prospects of our industry remain good, the macroeconomic environment has created uncertainty in our markets in the last few months," CEO Patricia Russo said in a statement.

The company predicted a first-quarter loss in 2008 because of a seasonal drop in revenue of 20 percent to 25 percent. Chief Financial Officer Hubert de Pesquidoux said he hoped the second quarter of 2008 would be better.

Alcatel-Lucent said it forecasts the global communications equipment and related services market in 2008 to be "flat to slightly up" at a constant euro-dollar exchange rate and "slightly down" at the current rate.

Russo seemed to be lowering investors' expectations for the second year of the combined operation after the company's bullish expectations for 2007. After a string of profit warnings last year, Russo faced down bouts of speculation that she or chairman Serge Tchuruk were under pressure to quit.

The company is also in the midst of a painful restructuring that foresees 12,500 job cuts. Alcatel-Lucent said it cut 6,700 jobs in 2007, for a total of 77,400.

Alcatel-Lucent is starting to show that underlying restructuring is working despite a tough market, and investors should see improving fundamentals this year and next, Exane BNP Paribas analyst Alexander Peterc said in a research note.

Analyst Richard Windsor of Nomura, however, said, "It looks to us like there is little or no delivery of savings to investors but rather to customers."

When it was conceived, the Alcatel-Lucent merger was designed to boost margins through cost and research and development savings, while improving the joint company's pricing power with telecom operators, its largest customers. But intense competition in the industry means many of the savings have been used on discounts passed on to customers.

Alcatel-Lucent's share price has plunged about 60 percent over the previous 12 months on the back of a string of profit warnings and concern over growth prospects for 2008.

Alcatel-Lucent shares closed up slightly at $6.03 in Paris after bobbing up and down earlier. Its U.S.-traded shares fell 25 cents, or 4 percent, to close at $6 in New York.

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