Alcatel-Lucent sees access revenues rise 13% despite slowing U.S. sales

Alcatel-Lucent (NYSE: ALU) reported that it saw first-quarter access unit revenues rise 13 percent year-over-year to $2 billion.

Access operating income was $76 million, compared with an operating loss of $42 million a year ago, a factor it says reflects continuing strong contribution from fixed access and progress in wireless and managed services.

The vendor also reported that it saw gains in the core networking segment, one where revenues rose 7 percent to $1.7 billion in the first quarter, but down 3 percent at constant rates. Core networking operating income was $46.2 million, down from $108 million a year earlier, primarily reflecting reinvestments to promote future growth and variations in product mix.

Within the core networking group, the vendor said it is seeing interest and activity in routing virtualization continued with eight Virtualized Service Router (VSR) wins to date, including three new wins in the quarter, and 55 trials underway.

However compelling these gains were, the company continued to see slow sales in North America, its largest region.

U.S. sales grew on a nominal basis to $1.66 billion, up from $1.55 billion a year ago. Verizon (NYSE: VZ), AT&T (NYSE:T) and Sprint (NYSE: S) made up 20 percent, 12 percent and 7 percent of the company's total revenue in the first quarter, respectively, compared with 17 percent, 14 percent and 8 percent, respectively, in the year-ago period.

"In a challenging environment and in particular a slow spending environment in North America, Alcatel-Lucent was able to increase its margin," Alcatel-Lucent CEO Michel Combes told reporters, according to the Wall Street Journal.

Analysts say that despite focusing on key areas like core routing and fiber connectivity, Alcatel-Lucent has placed too much emphasis on the North American market.

"Alcatel-Lucent is executing its growth strategy around core routing, small cells and fiber optics, which are growing faster than the broader telecom market, but the company remains overly dependent on the U.S. market, where operator investment is slowing," wrote Michael Soper, telecom analyst for Technology Business Research, in a research note. "In Alcatel-Lucent's results, U.S. sales grew 6.8% year-to-year due to currency effects."

Combes also defended the company's decision to sell itself to its competitor Nokia (NYSE:NOK) for around $17.6 billion (€15.6 billion)--which is up from the $16.6 billion value initially announced; the difference is due to changing exchange rates.

Combes reiterated his commitment that Alcatel-Lucent will deliver its first-ever full year of positive free cash flow in 2015.

Alcatel-Lucent saw its revenue bump up 9.2 percent to around $3.66 billion for the quarter, thanks mainly to the rising dollar; at constant currency rates the company's revenue actually fell 4 percent year-over-year.

Shares of Alcatel-Lucent were listed at $3.67, up 9 cents or 2.51 percent, in late Thursday morning trading on the on the New York Stock Exchange.  

For more:
- see the earnings release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

Special Report:  Wireline telecom earnings in the first quarter of 2015

Related articles:
Alcatel-Lucent overcomes sluggish U.S. carrier spending in Q1, bumps up sales and margins
Verizon's SDN strategy will migrate aging wireline platforms to software
Nokia's $16.6B bid for Alcatel-Lucent puts company back into the wireline game

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