Alcatel-Lucent reports Q1 loss amid stiff competition

PARIS — Alcatel-Lucent reported a fifth straight quarterly loss on Wednesday and braced investors for a bleak 2008 future, saying the telecommunication equipment market will be flat.

The company said it lost 181 million euros ($282 million) compared with a loss of 8 million euros a year earlier, when results were boosted by an asset sale.

Revenues fell to 3.86 billion euros ($6.02 billion) from 3.88 billion euros a year earlier. For the full year, Alcatel-Lucent said it expects revenue to decline 2 percent to 5 percent due to the weak dollar and lower spending by telecom operators, it's biggest customers.

It scaled back its outlook, saying 2008 will be a flat market compared with February expectations of "flat to slightly up."

Chief Financial Officer Hubert de Pesquidoux, speaking in a conference call, blamed the worsening economic climate.

Rival wireless equipment maker LM Ericsson of Sweden last week predicted "flattish development in the mobile infrastructure market" this year, but good growth in the professional services market.

Analysts, however, say Alcatel-Lucent has been slow to patch together Alcatel SA of Paris with Lucent Technologies Inc., of New Jersey, following a 2006 tie-up.

"They have not shown any real tangible benefits from the merger," said Sylvain Fabre, analyst at research firm Gartner.

"Yes, everybody is hurting, but if you are in this kind of downturn you want to have your house in order."

The Alcatel-Lucent deal was designed to boost margins by combining research and development, while improving pricing power with telecom operators, its largest customers. But intense competition in the industry means many of the savings have been passed on to customers.

CEO Patricia Russo said in a conference call "there is no question" that the two companies are pulling together, but "that doesn't mean we still haven't got work to do."

Credit Suisse analysts said in a research note Alcatel-Lucent is "slowly delivering on cost savings."

The company is in the middle of a painful restructuring that foresees 12,500 job cuts. After 6,700 job cuts in 2007, Pesquidoux said an additional 1,200 jobs were shed in the first quarter. The total number of employees stands at 76,200.

Nomura analyst Richard Windsor said the expected revenue decline puts margins under pressure. Sales must grow for the company to reach its post tie-up goals, he said.

Nonetheless, the company maintained its 2008 forecast of an adjusted operating margin in the mid single-digit range.

Still, shares fell 5.4 percent to 4.25 euros ($6.62) in afternoon trading.

Alcatel-Lucent's quarterly net loss didn't come as a surprise. When it reported its 2007 earnings in February, the company predicted a first-quarter loss in 2008 because of a seasonal drop in revenue of 20 percent to 25 percent.

Russo said Alcatel-Lucent is "prudent" about market conditions in the short-term, citing the fall in the dollar, higher oil prices, tight credit conditions and a slowing global economy.

"We remain positive about the about the industry in the long-term," she said.

Alcatel Lucent's share price has plunged about 10 percent this year, after losing more than half its value in 2007, on the back of a string of profit warnings and concern over growth prospects for 2008.

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