Friday, November 2, 2012

Alcatel-Lucent: Gains in IP and Wireline Offset by Declines in Optics, Wireless

Alcatel-Lucent reported Q3 revenue of Euro 3,599 million, up 1.5% quarter-over-quarter but down 2.8% year-over-year on a reported basis as gains in the IP business were offset by double digit declines in Wireless and in Optics.

Gross margin came in at 27.9% of revenue for the quarter, compared to 35.3% in the year ago quarter and 31.7% in the second quarter 2012. There was a reported net loss (group share) of Euro (146) million or Euro (0.06) per share.

North America witnessed a 10% revenue decline, whilst Central and Latin America recorded its eighth quarter of double digit growth, driven by Brazil. In Asia Pacific, which declined 10%, the continuous good traction in Japan and Australia partially offset the still low activity in China. Driven by good growth in Russia, Eastern Europe declined at a smaller pace than Western Europe, where low spending from service providers still prevail (adjusted for constant currency and compared to the year ago period).

"Our third quarter results are reflective of the significant transformation we are undertaking both in terms of scope and timing. In addition, our revenue growth and gross margin were impacted by overall carrier spending dynamics and product mix, especially in wireless.  During this transition period we are very focused on insulating our core operating business by maintaining our commitment to innovation and our investment levels in R&D. Our recent significant wins in the U.S, China and Brazil as well as the 20% growth in the order book for our HLN products have emphasized our relevance with the leading carriers as they roll-out their next generation networks," stated Ben Verwaayen, CEO Alcatel-Lucent.

Some highlights:

NETWORKS

Revenues for the IP division were Euro 490 million, a 30.3% increase from the year-ago quarter. The company reported strong growth for IP edge routers, especially in Japan, China, the US and Latin America, reflecting all-IP network transformation, as well as strong demand for trials of the new 7950 XRS core router in all regions.

Revenues for the Optics division were Euro 480 million, a decrease of 17.5% from the year-ago quarter. Despite continued declines in legacy equipment, WDM returned to growth in the third quarter, resulting in overall low double digit decline in terrestrial optics.  The company cited the success of its 1830 Photonic Service Switch (PSS), which was selected in the third quarter by China Telecom as part of their nationwide broadband expansion. There was continued weakness for the submarine optics business.

Revenues for the Wireless division was Euro 837 million, a decrease of 18.9% from the year-ago quarter. The company reported overall cautious spending from service providers.

Revenues in the Wireline division increased 26.3% from their year-ago level, to Euro 389 million. This quarter marked the second consecutive quarter that fiber-based access revenues surpassed copper-based access revenues. The IPDSLAM equipment grew at double digit rate, while the fiber access equipment grew 80% year-over-year, confirming particular strength in Asia-Pacific, driven mainly by China, immediately followed by the Americas and then by EMEA with PON technology.

Sales of  next-generation Networks products increased 20% from the year-ago quarter, reaching Euro 1,162 million in the third quarter 2012. At constant currency rates, sales of our next-generation Networks products increased 10% compared to the year ago quarter. This accounts for 53% of Networks sales, compared to 43% a year-ago.

S3 (SOFTWARE, SERVICES and SOLUTIONS)

Revenues for the S3 segment were Euro 1,155 million, an increase of 5.0% compared to Euro 1,100  million in the year-ago quarter and an increase of 9.7% compared to Euro 1,053 million in the second quarter 2012. At constant currency exchange rates, S3 revenues decreased 0.7% year-over-year and increased 8.3% sequentially.

Services revenues were Euro 1,058 million, a 6.2% increase compared to the year-ago quarter.   Network Applications revenues declined 6.7% from their year-ago level, to Euro 97 million in the third quarter. "Strategic Industries" Services business (including transportation, energy, and the public sector) had a strong sequential growth, driven by the EMEA and Asia-Pacific regions.

ENTERPRISE

Revenues in the Enterprise business were Euro 188 million, a decrease of -13.8% compared to Euro 218 million in the year-ago quarter and a decrease of -1.6% compared to Euro 191  million in the second quarter 2012. At constant currency exchange rates, our Enterprise business declined 16.5% compared to the year-ago quarter and decreased 2.6% sequentially. Excluding an OEM re-sale activity that was terminated in the third quarter of 2011, and one-time items, the data business would have increased 5%.

In a conference call, Alcatel-Lucent's CEO said the company's restructuring program will cut two layers in the organization, reducing the number of executives by 30%.  More than 60% of cuts will be in Europe.


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