Alcatel-Lucent Q2 revenue rises 2.4%, but shares fall amidst margin concerns

Alcatel-Lucent (NYSE: ALU) may have reported a net profit of $61.49 million and revenues of $5.5 billion in Q2 2011, but neither was enough to prevent its stock price from taking a dive due to potential margin erosion.

During the quarter, Alcatel-Lucent's revenue rose 10.4 percent over Q2 2010 and was up 7.6 percent sequentially. Likewise, its adjusted operating income was $154.46 million, or 2.8 percent of revenues.

As has been the case in previous quarters, Alcatel-Lucent's key areas of growth continue to come from its IP and optical divisions:

  • IP Division: Driven by ongoing sales of IP/MPLS routers in both the U.S. and in Asia, the IP division grew about 25 percent in Q2 with revenues growing almost 28 percent year-over-year to $584.63 million.
  • Optics Division: Led by double digit growth in the WDM, submarine and microwave segments, Alcatel-Lucent's optical sales rose 3.7 percent to $582.5 million. Among the customer highlights in Alcatel-Lucent's optical division was a deal with France's Completel to upgrade its backbone communications network and Hong Kong's New World Telecom. Meanwhile, ASC International selected Alcatel-Lucent to build its new submarine cable linking Perth, Australia and Singapore.
  • Wireline Division: Wireline revenues declined 2.5 percent year-over-year to $512.3 million, but they increased 3.6 percent at constant currency exchange rates. As was the case in its IP and optical division, Asia Pacific led the majority of the growth with strong fiber access sales. China Telecom, for example, purchased Alcatel-Lucent PON gear for its ongoing Fiber to the Home (FTTH) program. Not surprisingly, IP-DSLAM sales remained stable while legacy TDM switching and DSL declined.  

One of the concerns on financial analysts' minds is a potential slowdown in U.S. service provider spending--in particular, reports that Verizon Wireless (NYSE: VZ) might curb spending in the second half of the year while AT&T (NYSE: T) will spend another $1 billion on new network investments.

However, Paul Tufano, Alcatel-Lucent's CFO said that strong growth in the U.S. and Asia markets helped the vendor meet its targets and that it's "very committed" to reaching its financial targets. Tufano added that he believes the U.S. market will continue to be a strong growth engine throughout the rest of 2011.

"We made modest progress in reducing inventory and expect to accelerate that in second half," he said. "We remain very focused on making that target."

For more:
- see the release
- Reuters has this article

Earnings Summary: Wireline in the second quarter 2011 

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