Alcatel-Lucent Q3 earnings miss hits shares

Alcatel-Lucent Q3 earnings miss hits shares
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First Published: Thu, Nov 04 2010. 03 26 PM IST
Updated: Thu, Nov 04 2010. 03 26 PM IST
Paris/Helsinki: Telecom gear maker Alcatel-Lucent posted a smaller-than-expected third-quarter profit and kept burning cash, sending shares in the Franco-American group lower on Thursday.
Shares fell 3.4% to €2.447 by 03:20 pm while the STOXX Europe 600 Technology Index firmed 0.4%.
Adjusted operating profit for the September quarter rose to €61 million ($86 million) from a loss of 11 million a year ago, missing the 95 million average estimate in a Reuters poll of 11 analysts.
Its adjusted operating profit margin stood at 1.5%, missing all analysts forecasts in the poll.
Its sales grew for the first time in 10 quarters as demand started to recover outside North America.
“While our supply chain is still experiencing capacity constraints, the demand for telecommunications equipment and related services is recovering due to booming data traffic and the need to increase network efficiency,” the company said.
Quarterly sales grew 10.5% from a year ago to €4.07 billion, beating all analysts forecasts in the poll and reassuring investors the telecoms gear market had bottomed out.
“The positive top-line evolution is a sign that the business is coming back and we would expect other players (Ericsson, NSN, ZTE) to do well in the coming quarters,” said Bernstein analyst Pierre Ferragu.
Rivals Ericsson and Nokia Siemens Networks also returned to sales growth in the September quarter after the telecoms equipment market continued to shrink in the first half as operators focused on costs.
Bags $5.7 billion deals
Alcatel said it signed a four-year deal worth $4 billion to supply network equipment and services to Verizon Wireless -- a venture of Verizon Communications and Vodafone -- for its 3G network expansion and for its new LTE network.
Verizon Wireless had earlier picked Alcatel-Lucent and Ericsson as its LTE suppliers.
Alcatel said it would sign on Friday three framework agreements -- with China Mobile, China Telecom and China Unicom -- worth a combined €1.18 billion.
A general economic rebound has touched off a scramble for common parts, pitting network equipment makers against other manufacturers such as autos and consumer electronics groups. Alcatel-Lucent burned €297 million of cash in the third quarter -- with more than half stemming from building up component inventory.
“We have taken a pretty significant inventory and that comes at a cost. That was the right thing to do...We are doing better than others in the market, and the price that you pay for that is inventory,” chief executive Ben Verwaayen told reporters.
Verwaayen said he expects component shortages to ease materially in the coming quarters, but it would take time before the problem hampering the whole industry would be solved.
The group, which also competes with aggressive Chinese players Huawei and ZTE Corp -- repeated its outlook for a 1-5% adjusted 2010 operating income margin.
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First Published: Thu, Nov 04 2010. 03 26 PM IST