Alcatel-Lucent Q3 earnings take hit from weakened economy, lower carrier spending

Alcatel-Lucent's (NYSE: ALU) Chairman and CEO Ben Verwaayen has had high hopes to turn around the struggling company, but it appears that process is going to take longer than he initially thought.

For the quarter, revenue slid 6.8 percent year-over-year and 2.7 percent sequentially to €3.8 billion ($5.17 billion).

Analysts polled by Thomson Reuters I/B/E/S forecast €3.99 billion ($5.42 billion) and earnings before interest and tax (EBIT) of €158.5 million ($215.5 million).

On the wireline side, Alcatel-Lucent's key areas of growth continue to come from its IP division, while optics and wireline struggled in the quarter:

  • IP Division: Driven by ongoing sales of IP/MPLS routers in the Americas region, the IP division's revenues rose 2.7 percent to €376 million ($511 million).
  • Optics Division: In the optics division, Alcatel-Lucent reported €582 million ($791.3 million) in revenues, down 10.6 percent from a year ago. The vendor attributed the decline to both its submarine and terrestrial optics segments. However, it did report double digit growth in microwave sales across all regions, and in WDM in the Americas. One of the star performers in its traditional optics category was a number of wins for its single-carrier 100G technology at Maxis in Kuala Lumpur, T-Mobile Czech Republic, and Rostelecom in Russia. Meanwhile, in the submarine business, Alcatel-Lucent expanded its joint submarine cable maintenance program with TE Subcom to enhance their ability to build and repair undersea cables in the northern Pacific region.
  • Wireline Division: The wireline division's revenues fell 22.2 percent from their year-ago level, to €308 million ($418.7 million), a factor they attribute to slower IPDSLAM sales, particularly in EMEA and the Americas, and its legacy businesses. Despite lower IP DSLAM sales, Alcatel-Lucent did see a good deal of interest in its VDSL2 vectoring technology from large incumbent providers like Belgacom who plan to use it to extend the rate and reach of their existing last mile copper network. Its fiber access portfolio, including GPON equipment, grew over 40 percent with growth in the APAC and Americas regions.

Looking forward, the vendor said it has set an adjusted operating market of about 4 percent for 2011, a lower figure than its previous forecast of above 5 percent.

As seen with its competitors Ericsson, Juniper Networks and Nokia Siemens Networks, the lower outlook is related to fear that service providers will cut spending in the rest of 2011 and 2012.

Verwaayen said that to combat this problem he has devised a cost-cutting program to generate $275 million in savings in 2012.

"Given economic uncertainties, we will take more radical actions," he said. "You will see us increase our efforts on cost control and cash flow."

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

Earnings summary: Wireline in the third quarter 2011

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