Alca-Lu slashes costs, trims guidance

Michael Carroll
telecomasia.net
Alcatel-Lucent chief Ben Verwaayen promises radical action to cut costs by €500 million ($689 million), as he lowered fourth quarter predictions on the back of what he called an unsatisfactory 3Q11.
 
The equipment vendor’s earnings are heading in the right direction - net profit hit €194 million in 3Q11 compared to €25 million in 3Q10 - however revenue fell 6.8% year-on-year to €3.7 billion as sales in North America, Asia Pacific and Europe faded, and the cost of sales hit €2.4 billion.
 
“We are reducing our costs and increasing our profitability. However, we are not at a level we are satisfied with. And given economic uncertainties, we will take more radical actions to accelerate our transformation and reduce quickly our costs structure, especially in Europe,” Verwaayen states, adding. “This will generate additional savings in 2012 of €200 million in fixed costs addressing mainly our SG&A spending and €300 million in variable costs addressing mainly project and delivery efficiency.”
 
The chief cut operating margin forecasts from 5% to 4% as he predicts continued market weakness during the fourth quarter – particularly in Europe.
 
Markets reacted badly to the cut, with Alcatel-Lucent stock down around 12.5% in early trading Friday morning. The vendor’s Q3 revenue also disappointed coming in some €200 million lower than analysts predicted, Bloomberg reports.

However, the predictions are in line with rival infrastructure vendors including Nokia Siemens, which is targeting an operating margin of between 1% and 4%, and Ericsson, which cautions operators are reluctant to invest due to global financial uncertainty.

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