Wednesday, October 29, 2008

Alcatel-Lucent Reports Q3 Revenue of EUR 4.065 Billion, Down 6.6% YoY

Alcatel-Lucent's revenues for Q3 2008 declined 6.6% year-over-year and decreased 0.9% sequentially to Euro 4.065 billion. At constant exchange rate, revenues declined 2.2% year-over-year and 2.9% sequentially.

At constant exchange rate and on a year-over-year basis, Carrier revenues declined 9.4%, Enterprise revenues grew 6.3% and Services revenues grew 16.6%.

The adjusted gross margin was 32.5% of revenues, or 33.0% excluding a currency hedging loss of Euro 23 million. Adjusted operating expenses declined 9.6% year-over-year and 4.5% sequentially, leading to an adjusted operating income of Euro 40 million or 1.0% of revenues. Adjusted net income was Euro 41 million or Euro 0.02 per diluted share, including a one-time income of Euro 63 million pre tax and of Euro 38 million after tax resulting from the amendment of the post retirement healthcare plan.

Ben Verwaayen, CEO commented: "First, let me state that we are in good shape from a cash standpoint. We achieved a positive cash flow from operating activities this quarter through the reduction of our operating working capital requirements. The funded status of our pensions and other post retirement benefits remains materially positive with a prudent asset allocation. With gross cash on hand and marketable securities of Euro 4.46 billion and less than Euro 1 billion worth of bond debt maturing in the next 12 months, we are adequately funded.

"Second, we met our revenue guidance in a more challenging macroeconomic environment. In addition to the ongoing CDMA decline, we saw a reduction in spending by certain customers in developed markets, especially in fixed access and terrestrial optics. This was partly offset, however, by the strong performance of certain carrier activities, including W-CDMA, NGN and submarine networks. In addition, we continued to grow our Enterprise business at a healthy rate and saw accelerated growth in Services. "

Some highlights:

Carrier Operating Segment

  • Carrier operating segment were Euro 2,734 million compared to Euro 3,142 million in the year-ago quarter, a 13.0% decrease at current exchange rate and a 9.4% decrease at constant rate.

  • Fixed access revenue decreased at a strong double-digit rate. The ongoing decline in new subscribers to copper-based broadband access, coupled with a rapidly deteriorating economic environment led certain customers in North America and Europe to reduce their capital expenditure plans for fixed access, thus impacting both DSL and Digital Loop Carrier (DLC) activities.

  • Alcatel-Lucent shipped 6.1 million DSL ports in the quarter, down 23% from the year-ago quarter and 21% sequentially.

  • Revenue from FTTH solutions more than doubled this quarter, taking the year-to-date growth to more than 60%. Alcatel-Lucent further reinforced its leadership position in next generation broadband access both in FTTN, where it was selected by KPN as its exclusive supplier and in FTTH where it announced several contract wins, including EPB in US, Telecom Malaysia and Neuf Cegetel in France as part of a social housing project in Paris.

  • In data networking, revenue from IP/MPLS service routers enjoyed solid growth both year over year and sequentially, shipping to more than 20 new customers, taking the total to more than 250 customers to date. Alcatel-Lucent announced new wins with Eircom (Ireland), Bezeq (Israel), EPB Telecom (USA) and Telecom Malaysia. The company's solution for mobile backhauling (7705 Service Aggregation Router), is also gaining traction with more than 20 customers and 20 additional trials. The ATM switching business continued on its structural decline path.

  • Optical networking grew slightly this quarter, a contrast with the double-digit growth rate reported in the first half, reflecting a slowdown in the terrestrial optical networking market. Submarine networks and microwave transmission activities grew at a strong double-digit rate.

  • In mobile networks, GSM revenue declined this quarter, due to the temporary freeze on networks expansion in China during the Olympics. W-CDMA revenue doubled this quarter, as it continued to benefit from a strong ramp-up in revenues in France, the US and Korea. Alcatel-Lucent won several new W-CDMA customers in the third quarter including Vodacom in South Africa and BSNL/ITI in India. Year to date, the company has been selected by 11 new W-CDMA customers, taking the total to more than 50. CDMA revenues declined materially year-over-year but recovered sequentially, as the company began shipments to a Chinese customer.

  • LTE: in the past months, the roadmaps as well as the technical and business requirements of key operators around the world have significantly evolved. Recognizing the diversity of the market, Alcatel-Lucent and NEC are further optimizing the scope and format of their technical collaboration in the LTE radio access space. The two companies are currently considering the opportunity to focus their technical cooperation on selected parts of the LTE radio access platform, in the form of specific joint development agreements as appropriate. Alcatel-Lucent is fully committed to providing its customers with a superior end-to-end LTE solution. The company has already accelerated its global LTE development program in the past two quarters, and will continue to do so to meet the roadmap and requirements of its key customers around the globe.

  • The company's core switching activities declined moderately year over year, as the decline in legacy TDM voice was almost entirely offset by the strong, double-digit growth in NGN.

  • Applications had a softer quarter due to a slowdown in legacy Messaging and IN (Intelligent Networks) activities. Revenue from Subscriber Data Management and Multimedia applications continued to enjoy strong double-digit growth driven by Asia and the Americas.

Enterprise Operating Segment

  • For the third quarter 2008, revenues for the Enterprise operating segment were Euro 388 million compared to Euro 380 million in the year-ago quarter, an increase of 2.2% at current exchange rate and of 6.3% at constant rate. Adjusted operating income was Euro 29 million, or 7.5% of revenues, flat from last year.

  • Enterprise Solutions grew in the mid single-digit range. This was driven by Data networking which enjoyed its seventh consecutive quarter of double-digit growth as well as the sustained momentum in sales of voice solutions to large enterprises, more than offsetting the slowdown in demand from small and medium businesses.

  • Genesys, the contact centre software activity, grew at a high single-digit rate this quarter versus a double-digit rate in the first half, due to a slowdown in professional services.

  • From a geographic standpoint, the segment saw double-digit growth in both North America and Latin America and low-single digit growth in both Europe and Asia.

  • The adjusted operating margin of the Enterprise segment was stable both year-over-year and sequentially, at a rather high level.

Services Operating Segment

  • For the third quarter 2008, revenues for the Services operating segment were Euro 870 million compared to Euro 776 million in the year-ago quarter, an increase of 12.1% at current exchange rate and of 16.6% at constant rate.

  • Network operations enjoyed accelerated growth this quarter, both in revenues and orders due to the ramp-up of some of the large contract wins announced since the start of the year.

  • Network integration grew in the high teens this quarter, a somewhat slower growth than in the first half, due to the slowdown in the part of the business which is attached to the sale of carrier products. Alcatel-Lucent nevertheless continued to enjoy very strong growth in complex network design, network optimization and network transformation projects.

  • Growth in Professional services - which include the integration of software applications either from Alcatel-Lucent or third parties - accelerated to the high teens this quarter compared to the high single-digit growth achieved in the first half, driven by IPTV and OSS integration.