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Alcatel-Lucent Q1 Revenues Impress; Currency Fluctuations Drag Results Down.
30 Apr 08
Adverse euro/dollar exchange rate forces Alcatel Lucent's first-quarter revenue down 0.5%; however, on constant exchange rate, revenues were up 6.3%.
Global Insight Perspective | | Significance | Alcatel Lucent has reported first-quarter results showing strong revenue growths in its three main business segments. | Implications | The growth in Alcatel-Lucent's business suggests the company may have finally emerged from its poor, post-merger performance and will be looking for strong growth in subsequent periods. | Outlook | Although Alcatel-Lucent maintains the industry line for a flat scenario for 2008, Global Insight believes that there is an upswing in market conditions and that the forecasts are more an exercise in prudence rather than a lack of confidence in the market. |
Alcatel-Lucent has posted a mixed result for its first-quarter 2008 operations with revenue falling 0.5% year-on-year (y/y) to 3.86 billion euro (US$6.0 billion). However, the Franco-American telecoms equipment maker notes that assuming a constant euro-dollar exchange rate, revenues would have risen by 6.3% y/y. On a segmental basis, revenues from its carrier business remained strong as strong growth in its wireline and W-CDMA businesses offset the decline in the CDMA business. Alcatel-Lucent also had strong growth in its Enterprise and Services businesses, and reported solid performance for its North American business. Overall, the exchange rate debacle dampened what ought to have been a good quarter for the company. Alcatel-Lucent generates about half of its sales in dollar or dollar-related terms, making it very vulnerable to swings in the euro-dollar exchange rate. Growth in gross profit was limited to 4.8%, reaching 1.4 billion euro and despite the strong sales the group still posted a net loss of 95 million euro. Commenting on the result, Alcatel-Lucent Chief Executive Officer, Patricia Russo, said the revenue was in line with expectations given the impact of the euro/dollar adverse shift. She said: "This quarter we made progress in a number of areas and believe we are taking the right actions to position the company to take advantage of the long-term growth potential we see in the industry driven by new subscribers, more broadband deployments, and video and data traffic growth." Russo insisted that the company will remain prudent in its expectations and forecasted that the market will remain flat during 2008 with its full-year sales falling between 2 and 5% (see World: 8 February 2008: Alcatel-Lucent Announces Revenues Down 2.5% Y/Y at End-2007). Outlook and Implications - Improving Market Conditions: Regardless of the reaction of the financial markets, Alcatel-Lucent's results reflect a growing belief that the negative outlook may be coming to an end. Ericsson embodied that belief last week, when, despite a poor earnings performance, the market acknowledged that the company had invested to guarantee growth in the future. Similarly for Alcatel-Lucent, the rise in fixed-exchange-rate revenue from all its segments signals a more positive outlook. Specifically, the growing interest in fibre roll-out across much of the world is a welcome boost to the group's wireline business. In addition, the acknowledgement that W-CDMA rollouts are replacing CDMA networks neutralises concerns that the decline of CDMA will hurt the company's wireless business. Importantly too, the growth in mobile broadband services which is driving the rollout of higher speed mobile networks, is sure to boost demand for network upgrades—an important fact given that upgrades are higher margin businesses compared to new network rollouts. Nevertheless, the flat forecasts from Alcatel-Lucent and Ericsson are more an exercise in prudence than a lack of confidence in the market (see World: 25 April 2008: Ericsson's Fortunes Improve with 5% Rise in Q1 Sales).
- Alcatel-Lucent's Revamp: Alcatel-Lucent's results today are a far cry to what the company was a year ago. Then, Alcatel-Lucent was lumbering along after closing a complex transatlantic merger which combined French telecoms equipment giant, Alcatel, with the custodian of the United States’ Bell Labs heritage, Alcatel. After managing to win the backing of regulators on both sides of the Atlantic, and side-stepping doubts over the state of Franco-American political ties, the new management struggled to assimilate the two businesses and decide on what technology pathways to follow; however, that all seems in the past now. Throw in some job cuts, a more amicable political set-up, and some savvy business decisions, and Alcatel-Lucent has re-emerged as a potent player in the telecoms equipment market. The company is now a key player in the mobile-equipment market, and has positioned itself as a leader in the emerging long-term evolution (LTE) market. The company is also very much into WiMAX and remains loyal to its Bell Labs pedigree with some substantial innovative solutions (such as the solar-powered base stations and mobile TV technologies) (see World: 15 April 2008: Vendors in Collaboration Talks for LTE Licensingand Senegal: 25 February 2008: Alcatel-Lucent Deploys 200 Solar-Powered Base Stations in Senegal).
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