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Alcatel-Lucent's long turnaround path may finally have an end in sight, as the company reported encouraging fourth quarter profits and promised to grow ahead of the market in 2011.

There is still improvement to be made, said CFO Paul Tufano, and we can expect more reorganization as the firm gets "very aggressive on the cost of delivery" of all products, and makes its complex organization "much more streamlined, and simpler". He said the quarter had been helped by an easing of the component shortages that plagued the middle periods of 2010, and that all regions had seen growth, even saturated western Europe.

But overall the news was good and the French giant's stock leapt by 11.4% in Paris as the firm issued a confident outlook for 2011, saying it expected to grow more quickly than the overall market and to increase its operating margin. CEO Ben Verwaayen has been the architect of a turnaround based on a radical plan, but that has often looked elusive. At least he could exude genuine optimism, saying in his statement that he was "more confident than ever in our ability to transform into a normal company". He added: "We feel confident to grow faster than our addressable market and aim at a significant increase in profitability with an adjusted operating margin above 5% of 2011 sales."

Fourth quarter revenues rose by 19.3% to €4.86bn ($6.63bn), while full year revenues were up 5.5% to €15.99bn ($21.8bn). However, the strong quarter could not fully make up for the weak start to fiscal 2010, and ALU made a full year net loss of €292m and operating loss of €309m (much improved from last year's deficits of €504m and €692m respectively. For the fourth quarter, net income was up more than threefold, from €95m last year to €352m, while operating income rose 117% year-on-year to €304m.

By division, the IP unit was boosted by migration to all-IP backhaul and the introduction of its 100Gbps Ethernet cards (now used by eight carriers). It reported a year-on-year Q4 rise of almost 60% to hit revenues of €508m. Wireless, a segment where ALU has lost the top three position it enjoys in the overall telecoms market, was singled out for strong Q4 performance, with 3G revenues rising 56% despite disappointing showing in the Indian contracts. Indeed, all the product units - fixed access, optical transport and services - enjoyed revenue increases.

"They have topped low expectations," Mirko Maier, an analyst at Landesbank Baden-Wuerttemberg in Germany told Bloomberg. "The CEO has met his target of being profitable, and that should improve confidence in the company."

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