Alca-Lu turnaround underwhelms analysts

Michael Carroll
29 Jul 2011

Alcatel-Lucent finally turned revenue growth into hard profits during 2Q11, overturning a run of net losses with a profit of €43 million ($61.5 million).

The figure overturns losses of €184 million in 2Q10 and €10 million in 1Q11, and is enough for the vendor to confirm full-year targets of operating margin above 5% of 2011 sales, chief Ben Verwaayen said. The firm’s margin in 2Q11 hit 1.9% - down from 2.4% in 2Q10.

“We are on track for the year. In the second quarter, our next-generation product sales increased sharply, delivering market share gains in IP and optics, driven by the need for capacity and all-IP network transformation,” Verwaayen states.

Cost cutting measures are beginning to bear fruit, Verwaayen notes, with free cash flow up by €300 million year-on-year in 1H11. The firm is also focusing more closely on innovation “by realigning our management team and sharpening our strategy.”

The tough line paid off in the form of a 2.4% rise in revenue to €3.9 billion during the second quarter, which Verwaayen attributes to “significant growth,” in the Americas and Asia Pacific. Revenues in North America and Asia Pacific grew 4.4% and 4.1% respectively during the period, offsetting a 2.2% fall in European business.

However, the firm’s performance disappointed analysts and led to a run on its shares in early trading, the Wall Street Journal reports.

Despite the analyst jitters, Alca-Lu’s results beat rival Nokia Siemens Networks, which generated an operating loss of €111 million for the second quarter despite growing sales 20% year-on-year. Juniper Networks also suffered during the quarter, with income down $14.9 million (€10.4 million) year-on-year, while Ericsson grew profits 59% to 3.2 billion Swedish kronor (€352 million).

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