Alcatel-Lucent losses grow as revenue shrinks

MPLS routers are moving faster, but sales of DSL access equipment are slowing

Alcatel-Lucent reported a 6.9 percent drop in first-quarter revenue compared to last year, while losses more than doubled.

Revenue fell to EUR3.60 billion (US$4.82 billion) for the first quarter, from EUR3.86 billion a year earlier, while the net loss grew to EUR402 million, from EUR181 million in the first quarter last year.

"We are disappointed at having a loss," said CFO Paul Tufano in a webcast presentation to analysts.

Excluding exceptional items related to Alcatel's 2006 acquisition of Lucent Technologies, the increase in the net loss was more dramatic, widening to EUR358 million from EUR95 million a year earlier.

The company is relatively optimistic about the future: it expects operating results to break even for the full year, adjusted for exceptional items, despite reporting an adjusted operating loss of EUR254 million for the first quarter, down from an adjusted operating profit of EUR36 million in the same quarter last year.

"I think we have a very good shot at being profitable in 2010," said CEO Ben Verwaayen, in the same webcast.

The biggest fall in revenue came in equipment sales to carriers, down 14 percent to EUR2.22 billion.

Within that figure, sales of IP (Internet Protocol) products, including MPLS (multiprotocol label-switching) routers, rose 4.7 percent to EUR287 million but sales of legacy wireline telecommunications products including DSL access equipment fell 28.4 percent to EUR394 million.

"We are taking market share in IP," Verwaayen said.

He was also positive about the company's performance in wireless network infrastructure, which accounted for around half of equipment revenue.

As China builds out 3G (third-generation) mobile networks, he said, "We have won market share in all three technologies."

The first orders for the successor to those 3G networks, LTE (Long Term Evolution) are also starting to roll in. In February the company announced that it had won a contract to upgrade part of Verizon's mobile network to LTE (Ericsson will upgrade the rest) and the company is participating in most of the LTE trials around the world, Verwaayen said.

Application software sales rose 13.3 percent to EUR255 million, boosted by multimedia products for carriers, and services revenue jumped 20.6 percent to EUR797 million.

Alcatel-Lucent's sales were hardest hit in North America, where they fell 16.9 percent to EUR1.11 billion. Sales dipped 2.5 percent in Europe, to EUR1.25 billion, and 2.8 percent in Asia-Pacific, to EUR649 million.

The company is moving slowly ahead with its cost-cutting plan, which it hopes will reduce annual operating expenses by EUR750 million by the end of this year. It has laid off 290 managers, and plans to lay off 710 more. However, of the 5,000 contractor positions the company plans to cut, it has only eliminated 770 so far.

The company hopes to further cut human resources, finance and IT management costs by working with other companies to develop and sell new products targeting the convergence of IT and telecommunications. It said it is in active discussions with "potential co-sourcing partners" to achieve this.

These co-sourcing deals will also allow the company to better focus its research and development spending as it cuts spending on older products and certain niche markets.

"This is cost-cutting that will enable us to have a better profile in the market," Verwaayen said.

As for other costs, Verwaayen said that before asking outlying offices to reduce their real estate expenditure the company should quit its swanky Paris headquarters in the prestigious rue de la Boétie.

Neighboring properties have sold recently for around EUR8,411 per square meter of floor space ($1,040 per square foot) according to data from meilleursagents.com, making it one of the most expensive areas in Paris.

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