More cutbacks loom for Alcatel-Lucent

Caroline Gabriel/Wireless Watch
07 May 2013

Alcatel-Lucent narrowed its first quarter operating losses, but the cashflow challenges which afflicted its previous CEO still haunt new chief Michel Combes, and he is likely to initiative yet more stringent cutbacks.

The French giant slid back into a net loss in the quarter, with a deficit of €353 million ($460 million) compared to a year-ago profit of €398 million, the result of selling the call center business Genesys. How-ever, although figures missed analyst estimates, ALU did reduce its operating loss by 32% year-on-year to €202 million, on revenues up just 0.6% to €3.23 billion. The former figure included restructuring charges of €122 million and a financial loss of €152 million.

Revenue growth was driven entirely by a 15% uptick in US revenues, thanks to major deals (shared with Ericsson) with AT&T, Verizon and Sprint. North America is now the largest geographical market for ALU, at 48% of sales. Its heartland region, Europe, saw sales fall by 10% year-on-year to €771 million.

Gross margin was 29.4% of revenue for the quarter, compared to 30.2% in the year-ago quarter and 30.4% in the fourth quarter of 2012. The vendor said the decline in margin reflected the current “unfavorable product mix”, a factor also cited recently by Ericsson.

Combes, a former senior executive at Vodafone, has perhaps taken on a poison chalice, though he will be hoping he can quickly build on all the progress made by his predecessor Ben Verwaayen, whose ambitious vision and aggressive cost cutting did return ALU to profit, but not in a sufficiently sustainable way to reassure investors.

The deepening eurozone crisis derailed some of his plans and cashflow remained a serious challenge. That situation is scarcely improving yet. ALU reported a free cashflow loss of €533 million in the quarter, worse than the Q112 figure of €162 million. Combes' statement said cash generation "remains a challenge”.

The company has provided no guidance for 2013 as yet this year. Combes tried to be optimistic, saying: “Alcatel-Lucent's first quarter results reflect both encouraging trends in the marketplace and good progress with The Performance Program, for which discipline on execution remains the priority in 2013. Free cashflow remains a challenge. Strong focus will be placed on working capital management to reverse some of the negative impact incurred this quarter.”

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