Alcatel-Lucent's Q3 core revenues rise 11%, but submarine unit dragged down by delays

Alcatel-Lucent (NYSE: ALU) reported that strong sales across its three IP networking segments helped boost its Core Networking revenues 11 percent to $1.8 billion, but softness in its Alcatel-Lucent Submarine Networks (ASN) division drove it to forecast flat revenues for the year 2015.

The provider saw gains across IP Routing, IP Transport and IP Platforms.

IP Routing revenues were $712 million in Q3 2015, up 9 percent year-over-year from the third-quarter of 2014. Despite the gains it made in IP Routing, the company noted that performance varied by region, with strong performance in EMEA and CALA which was "almost entirely offset by softness in other geographies, notably in Japan."

Interestingly, Alcatel-Lucent said that "revenues from non-telco customers grew at a double-digit pace year-over-year, at constant exchange rates, and now represented more than 15 percent of total IP Routing sales."

IP Transport revenues were $610 million in Q3 2015, up 6 percent from the same period a year ago. Within this segment, terrestrial optics revenues were impacted by project timing during the quarter but bookings rose 1 percent. ASN witnessed year-over-year growth, but sales were tempered by delays in contractual implementation of awards.

Driven by strength in IMS for VoLTE applications at a number of large North American wireless operators, IP Platforms revenues were $442 million in Q3 2015, up 25 percent. However, growth was partially offset by declines in Policy and Charging as well as the tail-end of the phase-out of legacy businesses.

The service provider said that it expects Core Networking revenues for 2015 to be in the range of $7.5 billion to $7.7 billion and adjusted operating margin is now expected to be at a level similar to 2014 due to what it says is the "dilutive contribution from ASN."

Although there had been previous speculation that Alcatel-Lucent would sell off ASN, the vendor announced on Oct. 6 it would continue to operate the submarine cable business as a wholly-owned subsidiary.

As a result, Alcatel-Lucent said it would record a $212 million impairment charge, which will be in the form of a non-cash charge to goodwill historically allocated to ASN.

It is also moving ahead with being acquired by Nokia. The Nokia/Alcatel-Lucent deal is now expected to close in the first quarter of 2016. Nokia received approvals from the French and Chinese governments for the deal earlier this month and now needs the assent of its shareholders.

From an overall financial perspective, Alcatel-Lucent reported third-quarter revenues down 5 percent year-on-year to $3.8 billion.

For more:
- see the release

Special report: Tracking wireline telecom earnings in Q3 2015

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