Alcatel-Lucent fourth quarter: “No major surprises“

Alcatel-Lucent has defied market expectations. It announced a profit for its fourth quarter, on sales that rose above market forcasts for the business.

Alcatel-Lucent sales for the fourth quarter were down 5.4%, to just under Euro 5 billion, slightly ahead of analyst predictions for Euro 4.9 billion, the company has reported. The business also stated that operating cash flow of Euro 658 million for the quarter was the highest for a quarter so far, since the two businesses forming the company merged in 2006.

The company added it expected to break even in 2009, despite a Euro 3.91 billion writedown of ageing assets following what chief executive, Ben Verwaayen called a drastic deterioration of the world outlook.

According to Jouni Forsman, research vice president at research company, Gartner: “There were no major surprises in the Alcatel-Lucent quarterly announcement except that this time they delivered what they had promised. The service business generated more than 20% of Alcatel-Lucent revenue in 2008. Services enable to get closer to the customers for pull through product sales. We expect that it will be a challenge for Alcatel-Lucent to both grow and show good margins in this segment.“

He added: “2009 will be a difficult year for Alcatel-Lucent and its competitors. Alcatel-Lucent has painted a gloomier picture than its main direct competitors. This is partially due to the fact that if the new management can set low external expectations the company can then beat them easier. In addition, there is a business mix issue where Alcatel-Lucent is relatively stronger in fixed carriers than in mobile carriers versus Ericsson for example. It will be critical for Alcatel-Lucent to be successful in the mobile market.“

The new focus for Alcatel-Lucent is delivering results in internal metrics such as costs, which it managed to cut by 9-10%. One of the company’s most difficult challenges is to deliver external improvement towards customers and that will take more time, said Forsman. “Alcatel-Lucent must keep delivering what it promises and it must keep communicating on progress.“