Bloomberg News

Alcatel-Lucent Plunges Most in Nine Years on Lower Forecast

November 07, 2011

(Adds closing share price starting in second paragraph.)

Nov. 4 (Bloomberg) -- Alcatel-Lucent SA, France’s largest telecommunications equipment supplier, cut its profit forecast as economic uncertainty in Europe prompted customers to hold back orders.

The shares slumped 17 percent in Paris trading, the biggest decline since 2002. The full-year adjusted operating margin will be about 4 percent, 1 percentage point less than an earlier projection, Alcatel-Lucent said. Third-quarter sales fell 6.8 percent to 3.8 billion euros ($5.2 billion), missing the 4 billion-euro average analyst estimate.

Europe is “a hesitant market, and the uncertainties are bigger than we anticipated before,” Chief Executive Officer Ben Verwaayen said on a conference call. The forecast reduction is necessary for the Paris-based company “given the uncertainties affecting Europe, and the fact that we see fourth-quarter revenue in Europe weaker than we planned.”

Alcatel-Lucent said today it plans to seek additional savings of about 500 million euros in 2012 as it tries to keep down costs of sales and project implementation. Verwaayen is nearing the end of a three-year turnaround plan for Alcatel- Lucent, which lost almost 10 billion euros in the three-and-a- half years following its creation through the 2006 takeover by Alcatel SA of Lucent Technologies.

The company’s shares fell 34 cents to 1.67 euros.

Shares Slump

Third-quarter net income was 194 million euros, beating the 57.2 million-euro average estimates of 16 analysts compiled by Bloomberg. Alcatel-Lucent returned to profit in the second quarter with 43 million euros in net income.

To rebuild the company, CEO Verwaayen has sold assets including a stake in Thales, the aerospace manufacturer, and the Genesys call-center software unit, which Permira Advisers LLP agreed last month to acquire for $1.5 billion. Those proceeds will be used for debt repayments and “general working capital,” Chief Financial Officer Paul Tufano said today.

Leaders of the Group of 20 nations gathered in Cannes yesterday urged European governments to implement a rapid solution to the continent’s two-year financial crisis after Greek prime minister George Papandreou promised -- and then scrapped -- a referendum on continued membership in the euro. The European Central Bank announced a surprise quarter-point cut in the benchmark interest rate as President Mario Draghi warned of a potential regional recession.

Europe Consolidation

Third-quarter revenue from Europe declined 12 percent to 1.1 billion euros, Alcatel-Lucent said. Consolidation among mobile network operators, such as the 2009 merger of Deutsche Telekom AG and France Telecom SA’s U.K. units, may restrain network spending further by eliminating duplication even as data consumption surges thanks to devices such as Apple Inc.’s iPhone.

Sales from North America, Alcatel’s biggest market, slipped 0.3 percent, while Asia slumped 19 percent. The company reported a negative free cash flow of 436 million euros, a situation Tufano called “unacceptable” and pledged to rectify next year.

In its networking business, Alcatel-Lucent faces intensifying competition from China’s Huawei Technologies Co. and ZTE Corp., along with European rivals including Ericsson AB.

Ericsson, the world’s largest supplier of networking gear, is also shedding assets and agreed last month to sell its stake in handset joint-venture Sony Ericsson to its Japanese partner for $1.5 billion.

--Editors: Kenneth Wong, Simon Thiel

To contact the reporter on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net


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