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Alcatel-Lucent losses grow as revenue shrinks

Alcatel-Lucent reported a 6.9% drop in first-quarter revenue compared to last year, while losses more than doubled.

Revenue fell to €3.60 billion (US$4.82 billion) for the first quarter, from €3.86 billion a year earlier, while the net loss grew to €402 million from €181 million in the first quarter last year.

“We are disappointed at having a loss,” said CFO Paul Tufano in a Webcast presentation to analysts.

Excluding exceptional items related to Alcatel's 2006 acquisition of Lucent Technologies, the increase in the net loss was more dramatic, widening to €358 million from €95 million a year earlier.

The company is relatively optimistic about the future: It expects operating results to break even for the full year, adjusted for exceptional items, despite reporting an adjusted operating loss of €254 million for the first quarter, down from an adjusted operating profit of €36 million in the same quarter last year.

“I think we have a very good shot at being profitable in 2010,” said CEO Ben Verwaayen, in the same Webcast.

The biggest fall in revenue came in equipment sales to carriers, down 14% to €2.22 billion. Within that figure, sales of IP (Internet Protocol) products, including MPLS (multiprotocol label-switching) routers, rose 4.7% to €287 million but sales of legacy wireline telecommunications products including DSL access equipment fell 28.4% to €394 million.

“We are taking market share in IP,” Verwaayen said. He was also positive about the company's performance in wireless network infrastructure, which accounted for around half of equipment revenue.

As China builds out 3G mobile networks, he said, “We have won market share in all three technologies.”

The first orders for the successor to those 3G networks, LTE (Long Term Evolution) are also starting to roll in. In February, the company announced that it had won a contract to upgrade part of Verizon's mobile network to LTE (Ericsson will upgrade the rest) and the company is participating in most of the LTE trials around the world, Verwaayen said.

Application software sales rose 13.3% to €255 million, boosted by multimedia products for carriers, and services revenue jumped 20.6% to €797 million.

Alcatel-Lucent's sales were hardest hit in North America, where they fell 16.9% to €1.11 billion. Sales dipped 2.5% in Europe, to €1.25 billion, and 2.8% in Asia-Pacific, to €649 million.

The company is moving slowly ahead with its cost-cutting plan, which it hopes will reduce annual operating expenses by €750 million by the end of this year. It has laid off 290 managers, and plans to lay off 710 more. However, of the 5,000 contractor positions the company plans to cut, it has only eliminated 770 so far.

The company hopes to further cut human resources, finance and IT management costs by working with other companies to develop and sell new products targeting the convergence of IT and telecommunications. It said it is in active discussions with “potential co-sourcing partners” to achieve this.

These co-sourcing deals will also allow the company to better focus its research and development spending as it cuts spending on older products and certain niche markets.

“This is cost-cutting that will enable us to have a better profile in the market,” Verwaayen said.

As for other costs, Verwaayen said that before asking outlying offices to reduce their real estate expenditure the company should quit its pricey Paris headquarters in the prestigious rue de la Boétie. Neighboring properties have sold recently for around ¬8,411 per square meter of floor space ($1,040 per square foot) according to data from meilleursagents.com, making it one of the most expensive areas in Paris.

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