Tuesday, October 30, 2007

Alcatel-Lucent Posts Q3 Revenue and Presents Restructuring Indicatives

Alcatel-Lucent reported Q3 revenue of Euro 4.35 Billion, up 2.3% sequentially and down 7.8 % year-over-year at constant EUR/USD exchange rate. Gross margin improved sequentially to 34.2%. The company also presented new restructuring initiatives.

"As you can see our results this quarter were essentially in line with the update we provided on September 13, and in a few areas a bit better; however they are still not at a level that we are satisfied with, commented CEO Pat Russo.

Alcatel-Lucent's Board of Directors expressed its support for a newly presented restructuring plan. Key points of the plan include:

  • Streamlining the core carrier business, accelerated product cost improvement with increased portfolio focus on IP transformation of wireline and wireless networks.

  • Enhancing growth by developing an offensive strategy on sectors offering a strong growth potential, namely: high value added services and applications for the carrier markets; solutions for the enterprise markets and Industry and Public Sector; streamlining the organization into a simplified model with a focused management committee with clear accountabilities and ownership to quickly execute the plans.

  • Lowering the cost structure, especially in support functions and other savings arising from the realigned and streamlined Carrier business Group. The company expects that this plan will result in incremental savings of Euro 400 million in gross margin and comparable operating expenses by the end of year 2009. This implies an acceleration of our ongoing headcount targets into 2008 with incremental reductions of about 4,000 by 2009.

Some highlights for Q3 2007

  • Revenue for the carrier business segment was Euro 3,142 million compared to Euro 3,706 million in the year-ago quarter, an 8% decrease at a constant Euro/USD exchange rate, or a 15% decrease at current rate. Adjusted operating income (loss) was Euro 22 million, a 0.7% operating margin.

  • Revenue for the wireline business group was Euro 1,520 million compared to Euro 1,447 million in the year-ago quarter, an 8% increase at a constant Euro/USD exchange rate, or a 5% increase at current rate.

  • Revenues were very strong in optical networking with good growth in terrestrial and a robust increase in submarine. Metro and long-haul WDM exhibited a very strong performance. North America, Europe and South and Asia-Pacific increased on a regional basis.

  • Broadband access also demonstrated a solid quarter in DSL with 8.0 million lines delivered (24.9 million lines delivered year to date), up 19% year over year, with strong traction in North America.

  • Revenue for the wireless business segment was Euro 1,276 million compared to Euro 1,674 million in the year-ago quarter, a 20% decrease at a constant Euro/USD exchange rate, or a 24% decrease at current rate.

  • The wireless revenue decline was largely due to a comparison with very strong CDMA results in North America in the year-ago quarter, when significant initial revenues were booked for the deployment of CDMA2000 1x-EV-DO Rev A by major operators following the commercial availability of the enabling software. Sequentially, CDMA revenue slightly grew as CDMA gained outside North America, primarily in India, and Rev A deployments continued in North America and globally.

  • Revenue in GSM declined from the year-ago quarter but continued to gain traction with its second consecutive strong sequential increase, notably with new product offerings (Twin TRX and ATCA BSC).

  • Revenue for the convergence business group was Euro 346 million compared to Euro 585 million in the year-ago quarter, a 39% decrease at a constant Euro/USD exchange rate, or a 41% decrease at current rate.

  • Classic core switching revenue continued to decline. In the multimedia and payment businesses, revenues were negatively impacted by the declining market in pre-paid payment solutions. Investments continued in order to evolve IPTV capabilities, including the acquisition of Tamblin, a London-based developer of applications and tools that enables interactive TV programming and advertising over IP.

  • Revenue for the enterprise business segment was Euro 380 million compared to Euro 362 million in the year-ago quarter, an 8% increase at a constant Euro/USD exchange rate, or a 5% increase at current rate. Adjusted operating income (loss) was Euro 29 million, a 7.6% operating margin. Revenues increased across all parts of the enterprise business, with a very strong performance in the Asia-Pacific region.

  • Revenue for the services business segment was Euro 777 million compared to Euro 775 million in the year-ago quarter, a 3% increase at a constant Euro/USD exchange rate, or flat at current rate. Adjusted operating income (loss) was Euro 40 million, a 5.1% operating margin.

  • Year-to-date the company has reduced headcount of 5,000 people before the impact of managed services and acquisitions (approximately 1,350 people). The company plans to achieve its synergy-related comparable pre-tax savings of Euro 600 million this year.

  • For the fourth quarter 2007 the company expects a solid ramp up in revenue over the third quarter 2007. For the full year, given some of the recent uncertainty seen in the market, revenues are likely to be around flat at Euro/USD exchange rate which is at the low end of the range previously provided.