Alcatel-Lucent delivers first full year profit
Fourth quarter sales fall on networks capex slowdown, but CEO Verwaayen's turnaround plan finally looks real
Published: 10 February, 2012
READ MORE: Financial | Infrastructure
Alcatel-Lucent's CEO Ben Verwaayen bought himself some breathing space after the near-hysterical response to the French giant's disappointing third quarter. He delivered the company's first full year profit in six years, and a fourth quarter in which earnings more than doubled, even though revenues fell by almost 13% year-on-year.
Despite the revenue dip, this was a convincing sign that ALU's long fight for sustained profitability has been won, and the three-year turnaround which Verwaayen pledged when he took the helm as CEO is on track. However, this will come at further cost - the company was reported this week to be planning a further 1,800 job cuts this year as it continues to adjust its cost base to the decline in some of its markets (though it did not confirm this on the results call).
ALU is overshadowed by Ericsson and Huawei in wireless infrastructure, but has advantages over its Swedish arch-rival in the IP backbone, increasingly an important element of capex spending for mobile as well as fixed broadband operators. In the cellular space, it is trying to outdo Ericsson by living close to the cutting edge, deconstructing the traditional base station with its lightRadio platform and pushing eagerly ahead to HetNet and LTE-Advanced.
The changing balance of the infrastructure business is seen in ALU's quarter. The networks division saw a 16% decrease in revenue. Although the IP business fell back, it was at a lower rate than the wireless or optical units, while wireline was seeing some catch-up. In fact, IP recorded its second highest quarter in revenues ever. As at Ericsson, wireless was hit by a slowdown in cellco spending, especially in north America and the eurozone, after several strong quarters driven by US deployments of LTE. There was moderate decline in software and services, high single-digit growth in managed services, and flat performance in the enterprise segment.
ALU is working hard to differentiate itself from Ericsson, with the increasing convergence of IP and wireless development, and an intensified focus on cloud and 'Telco 2.0' services for operators. But it takes many lessons from its larger competitor too - mirroring similar plans by Ericsson, it announced a plan to boost revenues from its huge store of patents, which number some 29,000. CFO Paul Tufano said ALU will offer access to its IPR through a licensing syndicate, aiming to generate "significant" revenue.
For the full year, ALU announced net income of €1.1bn ($1.5bn), the first annual profit since the company went through its difficult merger (it accumulated almost €10bn in losses in its first five years as an entity). Sales were up 2% to €15.3bn, and its shares climbed as much as 22% in Paris on the news. In the fourth quarter, net income was up from €340m in the year-ago period to €868m, but sales were down 13% to €4.15bn, below analyst expectations.
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