Alcatel-Lucent Loss Worse Than Expected

The financial press are savaging Alcatel-Lucent following the announcement this week of huge losses. The company was formed as a ‘merger of equals’ last November.

Bloomberg reported their share price plunging 9.3 percent yesterday as forecasts had called for a milder loss.

The net loss was €586 million, or $802 million, in the second quarter, the company said. Analysts in a Bloomberg survey had anticipated a loss of €275 million.

Revenue slipped 3.7 percent, in line with the company’s projections, to €4.33 billion, in the second quarter, after falling 12 percent in the previous three months. Sales were hurt by lower demand for older mobile networks in emerging markets and for phone gear, including switches.

Alcatel and Lucent Technologies would have reported net income of €128 million in the second quarter of 2006 if the companies had been merged at the time.

Some investors want Patricia Russo, the chief executive, to provide a margin forecast to judge whether the merger is working.

“The margins are very much under pressure and there’s no visibility,” said Frederic Hamm, a fund manager at Agilis Gestion in Paris. “It was expected that the numbers would be bad.”

But investors will have to wait until next year for a forecast on the company’s operating margin, Russo and Jean-Pascal Beaufret, the chief financial officer, said during a conference call.

“We’re prepared to give those specifics after a period of time, after a year of transition,” Beaufret said. “We will give specifics on the earnings model in early 2008.”

Russo said Alcatel-Lucent would provide “a more specific financial profile” for the coming years “as we enter 2008.”

Alcatel and Lucent, unable to revive sales or their share prices since the technology bubble burst in 2000, combined last year to fight competition from Huawei Technologies and Ericsson.

The company lost money in its first two full quarters as a merged entity, after reporting a loss in the fourth quarter when Lucent figures were included in Alcatel’s results for one month.

The second-quarter loss included €250 million for amortizing the Lucent purchase and a €298 million write-down of a unit that provides wireless networks.

Russo said in February that a planned cut of 12,500 jobs would help shave €1.7 billion in annual costs in three years. The cuts affected 3,800 jobs, or 30 percent of the three-year target, by the end of June. Planned savings of €600 million this year will be partly reinvested in the company.

Russo has said that about 55 percent of the planned cost savings will come from job cuts and 45 percent from operations like purchasing. Restructuring costs will be about €1.6 billion, including €900 million this year.