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Alcatel Misses Earnings Estimates

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Alcatel-Lucent, S.A. reported a net loss from continuing operations of $0.20 (€ 0.16) per ADS in the first quarter of 2013, worse than the Zacks Consensus Estimate of a loss of $0.10. In the prior-year quarter, Alcatel had reported earnings per ADS of $0.13. Earnings in the reported quarter include an after-tax impact from purchase price allocation entries.

However, excluding the negative impact of the purchase price allocation entries, loss per ADS came in at $0.19 compared with earnings of $0.15 per ADS in the prior-year quarter.

Total Revenue

In the first quarter of 2012, Alcatel posted revenues of €3.2 billion ($4.1 billion), up 0.6% year over year but down 21.2% sequentially. The decline was attributable to stagnant orders. Further, on a geographical basis, the company witnessed declines in Europe that were partially offset by growth in Asia Pacific.

Geographically, North America posted a 15.1% growth year over year. However, Alcatel witnessed mixed trends in Asia Pacific, which resulted in a low single-digit decline of 5.8% year over year. Further, strong performance in Japan and financial stability in China were partially offset by continued low volume of activity in the Asia pacific region. Further, cautious spending in Europe resulted in a decline of 10.1% in revenues from the region. However, revenues from the Rest of World were down 13.3% as continued traction in Brazil was more than offset by poor results in Central and Latin America, the Middle East and Africa.

Segmental Performance

Revenues for the Network and Platforms segment increased 4.2% to €2.7 billion ($3.6 billion) but decreased 21.2% sequentially. Most of the sub-segments reported a year-over-year increase in revenues.

Revenues in the IP division increased 6.3% year over year, driven by continuous progression in the American region and breakthroughs in Japan’s NTT, which resulted in revenue growth in the Asia Pacific region in the quarter.

The Wireless division reported a 4.9% increase from the year-ago level. In 2012, the Wireline business reported its first full year of growth since the merger of Alcatel and Lucent, primarily driven by fiber roll-outs for nationwide broadband initiatives. In third quarter also the growth drivers continued to improve the company’s results. The company signed a number of LTE contracts in the last quarter. However, growth in LTE and RFS, which includes cable, antenna and tower systems, was partially offset by an overall decline in 2G/3G technologies.

Revenue in the Fixed Networks grew 8.6% year over year. However, the Optics division reported a decline of 15.6% year over year. This decline was partially offset by improved results from the WDM (Wavelength-Division Multiplexing) technology segment. Revenues from the Platforms division experienced a marginal increase of 8.6% year over year.

Revenues at the Services segment grew 33.2% year over year to €2.9 billion ($3.8 billion) but declined 9.8% sequentially. During the quarter, the division’s Network applications along with its Strategic Industries Services reported strong revenues. The year-over-year growth was primarily driven by Network Build and Implementation (NBI) as well as Integration Services.

Revenues in the Focused Business declined 22% year over year and 19.2% sequentially to €302 million ($399 million) in the first quarter of 2013. At constant currency exchange rates, revenues at the Enterprise business segment declined 23% year over year and 18.9% sequentially. Both the sub segments, Enterprise and Submarine reported a decrease.

Revenues from the Managed Services segment decreased 4.2% to €2 billion ($2.6 billion). However, Alcatel  entered into 5 new long- term contracts during the quarter. This is expected to improve the company’s results in the coming quarters.


Gross margin for the first quarter declined approximately 80 basis points (bps) to 29.4% year over year while it reduced 100 bps from 30.4% in the previous quarter. The year-over-year decline was attributable to a lower mix, and lower volumes.

Operating expenses during the quarter decreased 5% year over year (constant currency) attributable to the cost reduction plan implemented by Alcatel, primarily focusing on SG&A expenses, which declined 11.3% year over year on constant currency. On a sequential basis, operating expenses increased marginally by 0.5% (constant currency), driven by a 2.3% sequential increase in R&D expense.

Balance Sheet & Cash Flows

Exiting the quarter, Alcatel had a net debt of €358 million ($458 million) versus €147 million ($193.8 million) of net cash at year-2012. The sequential decrease in net cash of €505 million ($667 million) primarily reflects negative operating cash flow of €144 million ($190.2 million). The negative cash flow is primarily attributable to, restructuring costs of €100 million, capital expenditure of €117 million and contribution to pension plans and negative working capital requirements of €146 million ($192.8 million).

Presently, Alcatel-Lucent has a Zacks Rank #4 (Sell). A few other companies operating in the same industry who are worth considering at the moment are Plantronics, Inc. (PLT - Free Report) with a Zacks Rank #1 (Strong Buy), while, NICE Systems Ltd. (NICE - Free Report) , and ClearOne, Inc. have a Zacks Rank #2 (Buy) .

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