Merger costs, flat sales hit Alcatel-Lucent

Up hill battle

unhappy

Alcatel-Lucent released its second quarter financial results Tuesday, showing continuing losses as the telecoms firm struggles with merger costs and reduced sales.

The company posted an adjusted second quarter net loss of €336m, or €0.15 loss per share, compared to an adjusted profit of €302m, or €0.18 earnings per share in the same period a year earlier. Second-quarter revenue dipped four per cent to €4.33bn, down from €4.49bn the year before. The 2006 figures are pro-forma, based on what the separate companies Alcatel and Lucent would have earned if their results were combined.

The second quarter loss included €250m to amortise the purchase of New Jersey-based Lucent Technologies by Alcatel SA last year. The merger was an effort to head off competition from Asian and European firms, but the expected sales increases in key sectors have so far not materialised. In the highly competitive wireless infrastructure market, for example, sales fell by eight per cent to €1.24bn in the second quarter, compared to €1.40bn a year earlier.

"2007 is clearly a transition year for the company as we continue to execute on our integration plans in a rapidly changing industry," CEO Patricia Russo said in a statement. She added that the company "was negatively impacted by continued significant investments in key markets, an unfavorable product and geographic mix as well as some impact from product related transition costs as customers migrate their networks".

The company's gross margin fell to 33.4 per cent from 38 per cent a year earlier. Russo believes that this level is not indicative of the business going forward. The company says it is on track to achieve "mid-single digit" revenue growth for the full year, which implies a strong ramp-up in second-half sales. The company also reaffirmed its forecast of €600m in pretax cost savings in 2007, in line with its target of €1.7bn within three years.

Shares in Alcatel-Lucent fell 10 per cent in response to Tuesday's announcement. The Franco-American firm had issued a profit warning in January of this year and in February announced it would be cutting 12,500 jobs worldwide over the next three years. Some 1,900 jobs were shed in the second quarter, bringing the total reduction in headcount to date to 3,800, 30 per cent of the target amount.

Seventy of the firm's Irish employees were let go in February as part of the group-wide cost cutting. Prior to that Alcatel-Lucent employed 390 staff in Ireland - 260 full time staff and 130 contractors.

© 2007 ENN

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